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Court of Appeal, Fourth District, Division 1, California.

SECURITY PACIFIC NATIONAL BANK, Plaintiff, Cross–Defendant, Appellant and Cross–Respondent, v. James J. WILLIAMS, et al., Defendants, Cross–Complainants, Respondents and Cross–Appellants.

No. D004365.

Decided: August 31, 1989

Lillick McHose & Charles, Mason C. Brown, Leslie A. Watts, Los Angeles, Luce, Forward, Hamilton & Scripps, Robert G. Steiner, Margaret M. Mann and Nathan S. Arrington, San Diego, for plaintiff, cross-defendant, appellant and cross-respondent. Benes & Fiorello, Richard H. Benes, Bart J. Miesfeld, Frega & Tiffany, Patrick R. Frega and Gregory A. Lutz, San Diego, for defendants, cross-complainants, respondents and cross-appellants.

Security Pacific National Bank (Bank) appeals a judgment awarding James J. Williams more than $2 million in compensatory damages, $2.5 million in punitive damages and $200,000 in attorney's fees for fraudulently inducing Williams to purchase an additional automobile dealership, Viking Dodge, which ultimately resulted in his bankruptcy and the closure of his original, and previously successful, automobile dealership, Baron Buick.   The trial court alternatively found the Bank's conduct constituted a tortious breach of the covenant of good faith and fair dealing implied in his personal guarantees on the loans for the dealerships.

The Bank essentially presents a three-pronged attack on the judgment.   It first chastizes itself as a victim of “trial by ambush,” alleging procedural errors including Williams being permitted to amend his cross-complaint at trial to add a cause of action for tortious breach of the implied covenant of good faith and fair dealing and denying its requests for a continuance for needed discovery and for a mistrial.   Next, it faults the court for finding a fiduciary duty existed between itself and Williams in this commercial transaction, and contends no “bad faith” tort remedy exists.   It also argues the damage award was excessive.

Williams's cross-appeal asserts the trial court erred in limiting his attorney's fees award to $200,000 because it ignored the terms of the reasonable contingent fee contract with his attorney and, in any event, the award was unreasonably low in light of the heroic proportions of his counsel's efforts.   Because we find the trial court's judgment can be sustained on its theories of fraud, negligent misrepresentation, and the existence of a fiduciary relationship, we do not address the correctness of the trial court's alternative finding of liability based upon the perceived tortious breach of the implied covenant of good faith and fair dealing.   For the reasons which follow, we conclude the Bank's remaining claims and Williams's cross-appeal are meritless.   Accordingly, we affirm the judgment.


We state the facts in the light most favorable to the judgment.   In 1975, Williams purchased Baron Buick with three partners, Mick Chesrown, Theo Lamb and Emanuel Bugelli, each of whom invested $50,000.   With almost a decade of automobile dealership experience,1 Williams managed the dealership with Bugelli visiting periodically to discuss the financial aspects of the enterprise.   Under Williams's guiding hand, Baron Buick evolved from a losing dealership into a very profitable one.   In 1976, he bought out his partners for $72,000 each and at the age of 25 became the youngest holder of a General Motors franchise.

Although Williams was a skillful car salesman, he had little training, experience or knowledge in automobile financing and banking, relying instead on the guidance of others.   He was particularly unsophisticated in interpreting and understanding dealer financial statements.2

After acquiring Baron Buick, Williams developed a close personal and business relationship with Charles Walker, who was the Bank's vice-president responsible for dealership credit in San Diego County and who maintained a hands-on relationship with the Baron Buick account.   Williams and Walker had daily contact, discussing problems involving the finances of the dealership.   They lunched several times a week;  Walker's oldest son was a close acquaintance of Williams;  and Williams considered Walker like a father.   Walker considered Williams like a son.   Williams not only trusted Walker, but loved him.

Williams also developed and maintained a close personal relationship with Howard Butler, who ran the Bank's El Cajon service center and took over the Baron Buick account.   Their relationship was both business and social.   They met frequently, permitting Butler to tutor Williams on the Bank's financial expectations for Baron Buick.   Socially, they went fishing and bought a boat together.   They became not only “very close friends,” but also “business partners, so to speak.”

Williams also developed a personal and trusting relationship with John Robert Ross, who was the Bank's credit coordinator responsible for handling problem dealerships.   He was the Bank's aggressive crisis manager, responsible for determining whether a dealership could be saved and if not, what the Bank could salvage.   Williams was encouraged by Butler to get to know and rely on Ross's superior knowledge of dealership financing.   They too developed a social relationship, exemplified by a three or four-day trip to the 1979 Superbowl.   Their close personal relationship resulted in foregoing customary business formality;  for, when Ross dealt with Williams, his word and representations were considered binding upon both him and the Bank.   Williams trusted Ross who admitted he knew Williams was “deficient” in the critical area of interpretating financial statements.

Unlike ordinary bank lender/borrower commercial relationships, extensive evidence, including testimony of banking experts, revealed that automobile dealership bank financing customarily engenders close relationships between staffs at automobile dealerships and financial institutions with the dealers viewing the bankers as their partners.   Williams entertained this view which prevailed in the industry, and the Bank's representatives continually advised him their treatment as partners would guarantee their relationship would go a long way.   The mutual trust relationship entertained by similar Bank-financed dealers was reflected by their complete reliance on the Bank's financial expertise.   This reliance was consistent with Williams providing complete access to all financial information from Baron Buick.   The Bank assumed an active role in managing Baron Buick.   For example, if Walker advised Williams he had a problem regarding his financial statements, the latter would do whatever the former suggested, including laying off employees or lowering or raising inventory.   He trusted and depended upon their superior knowledge of financial matters.3

The Bank regarded Williams as a favored car dealer by mid–1978.   So much so that in late 1977 Walker prevailed upon Williams to temporarily manage Lamb Chevrolet to protect the Bank's interest which was jeopardized because of financial difficulties.4  For this it paid him $1,000 a day.   Williams resolved the problems at Lamb Chevrolet to the Bank's delight.   Butler declared he had done “a very good job.”

The Bank gave Williams special financing privileges, including (1) instant credit on used car drafts, (2) instant credit on conditional sales contracts, (3) a contingent reserve less than 3 percent required in the master flooring agreement,5 (4) a liberal credit policy with regard to the granting of overdraft privileges, and (5) a liberal policy of extending capitalization loans.   Although offering a distorted picture of a dealership's true financial condition, these privileges were designed to provide the dealerships with more working capital than they actually possessed and were extended by the Bank to solicit conditional sales contracts from high volume dealerships.   These contracts were more profitable and less risky than other financial arrangements, such as flooring financing or capitalization loans.

While Williams was general manager at Lamb Chevrolet during 1978, Baron Buick experienced some overdrafts, causing Ross to come down from Los Angeles to discuss the matter with Williams.   Concluding Baron Buick was not being properly managed because Williams was dividing his time between the two dealerships, the matter was resolved within 60 days of Ross's visit.   By January 1, 1979, Williams left Lamb Chevrolet and returned full time to Baron Buick, which quickly returned to profitability.   With earnings high, Williams was confident and eager to acquire other dealerships.

At about this time, Bugelli's dealerships in Los Angeles, Universal Ford, Westchester Ford and Viking Dodge, were for sale.   The management of these dealerships was the antithesis of the Williams approach and the Bank faced the prospect of a substantial financial loss.   Universal Ford and Westchester Ford, in particular, employed classic, high-pressure sales techniques, including the “TO” (turn over) sales method where customers would be turned from one salesman to another, almost literally kept prisoners as they were passed on from one salesman to the next until a deal was finally consummated.   In working class areas, these tactics produced a high volume of sales and a correspondingly large number of “risky” conditional sales contracts, which generated a high percentage of repossessions and a great deal of friction between Bugelli and the Bank.   Nevertheless, the Bank had loosened credit standards for Bugelli because of the large volume of conditional sales contracts being generated,6 and their relationship, though sometimes tense, proved mutually very profitable until February 1979, when a four-day Los Angeles television news expose blew the whistle on Bugelli's Universal Ford “bait and switch” tactics.7  With its revelation of other questionable high pressure techniques, the expose created a sensation in the relevant market area and the Department of Motor Vehicles began to investigate the Bugelli dealerships.   Concerned, Robert Montieth, president of the Bank's credit division, without notice and contrary to the Bank's agreement with Bugelli halted purchase of conditional sales contracts from the Bugelli dealerships.8  The television expose coupled with the Bank's restriction on the purchase of conditional sales contracts rendered Universal Ford and Westchester Ford worthless.

The Bank successfully insisted the flooring at Universal Ford and Westchester Ford be transferred to Ford Motor Credit during January and February 1979.9  However, the Bank remained at risk for at least $1.5 million on a flooring line at Viking Dodge and an approximately $220,000 capitalization loan to Bugelli for the purchase of the dealership.

Ross orchestrated the process of transferring the flooring and insuring the Bank's flooring lien was paid by placing his examiners in the Ford dealerships on a daily basis.   In fact, Ross had approved Bugelli's purchase of Viking Dodge at the same time the Bank had decided to get out of the flooring of Universal Ford and Westchester Ford.   At a time when the Bank had a verbal policy not to establish any new credit relationships with Chrysler dealerships, Ross helped Bugelli acquire Viking Dodge to use as a “dump” for his repossessions when he sold Universal Ford and Westchester Ford, although Bugelli told him the dealership would not be profitable for a year.10

After the television news expose, Williams met with Ross to discuss the possibility of his acquiring Universal Ford.   Ross counseled against the purchase because of the adverse publicity and his belief it was too large a dealership for Williams to manage simultaneously with Baron Buick.   Threatening to “pull the chain” (the Bank's flooring credit) at Baron Buick if Williams persisted, Ross refused to permit him to make the acquisition.   Williams then inquired about Westchester Ford, but Ross again counseled against it.   However, when Williams then asked about Viking Dodge, the Bugelli dealership from which the Bank needed a financial bail-out, Ross responded:  “Now, that's a good one;  I'll help you buy that one.”   He advised Williams to negotiate with Bugelli, but not to sign anything unless he first approved it.   He extolled Viking Dodge as financially sound, a profitable dealership in which, in light of its size and manageability, Williams could prosper.

When Bugelli asked $50,000 for “blue sky” (goodwill), Ross told Williams there would be no payment for blue sky.   Ross then stated he would dictate the deal on Williams's behalf and get him “a good deal.”   First, he told Williams he wanted Chrysler Credit to take over the flooring from the Bank, explaining this would provide Viking Dodge with greater working capital, because the dealership could benefit from a “legitimate float.”   Secondly, he wanted Williams to assume the contingent liability on 73 conditional sales contracts the Bank had purchased from Viking Dodge, which Ross had reviewed and characterized as all good.   Ross promised that if Williams assumed this contingent liability, the Bank would permit him to assume Bugelli's capitalization loan for Viking Dodge and purchase the conditional sales contracts from Viking Dodge after Williams acquired the dealership.   Dealing personally with Williams, the Bank required he sign personal guarantees on the Viking Dodge liability.   Ross told Williams an examination of the financial statements of Viking Dodge showed that it was making $20,000 per month.   He declared, “he was monitoring the situation” of Viking Dodge, which with his representation he was acting in Williams's interest in the purchase implied his people were watching over the books to make sure Williams would not be cheated.11

On March 28, 1979, the parties agreed on terms dictated by Ross for Williams's purchase of Viking Dodge.   Bugelli characterized Ross as “King Kong” and Williams as Ross's “fair-haired boy” in describing their respective roles in the transaction.   After this meeting, the Bank facilitated Chrysler's approval of the transaction by sending a letter misleadingly stating the Bank was making a capitalization loan for $225,000 (Exh. 28), falsely implying the Bank was capitalizing the dealership with an additional $225,000 of working capital when in reality Williams was simply assuming Bugelli's existing obligation.   Because Viking Dodge's actual capitalization was far below Chrysler's stated guidelines for adequate capital, Chrysler would not have approved the change of ownership had the Bank truthfully stated the facts.   Williams commenced managing Viking Dodge on March 31, before the proposed sale was approved by Chrysler.   Actual ownership was transferred on May 1.

Viking Dodge was doomed to fail from the day Williams purchased it.   The true financial condition of the dealership at that time known to the Bank, but not Williams, was:  (1) contracts in transit (conditional sales contracts purchased by banks other than the bank providing the flooring credit) were up dramatically;  (2) working capital was critically low;  (3) February 1979 showed a loss of $1,700;  (4) March 1979 showed a loss of $133,000;  (5) April 1979 showed a loss of $96,000;  (6) new car inventory had increased from $1.5 million to in excess of $1.7 million;  and (7) sales were down.   Further, on March 15, 1979, the dealership had wholesaled used cars to avoid being sold-out-of-trust.   Viking Dodge was in serious trouble and the Bank knew it.   Not only were monthly financial statements sent to the Bank by Bugelli, but in March and April, Bank representatives directly supervised by Ross monitored the dealership operations daily.

A substantial part of the business of Viking Dodge was from the sale of vans.   In fact, before Williams acquired the dealership, approximately $900,000 of its total $1.3 million to $1.5 million inventory was in vans, the source of approximately 50 percent of the dealership's profits.   Nearly 90 percent of the vans sold were custom or conversions.   Unlike Williams's experience at Baron Buick where the Bank purchased conditional sale contracts on custom vans, the Bank refused to finance such conversions when Williams took over Viking Dodge.   Ross never forewarned Williams the Bank would pursue any different conversion financing policy at Viking Dodge.   Consequently, the Bank's new policy as to Viking Dodge eliminated a major source of profit.   The Bank's newly implemented restrictive policies concerning the purchase of conditional sales contracts, Viking Dodge's inadequate capitalization, the 1979 gas crisis, Chrysler's financial problems, and a sluggish domestic market, cumulatively drove the dealership into bankruptcy during the following months.

As the overall situation became more bleak, the Bank's policies concerning the purchase of conditional sales contracts became increasingly restrictive.   Loose credit and special privileges were withdrawn from Williams when they were really needed.   Instant credit on contracts or used car drafts was no longer available and Viking Dodge suffered substantial losses on repossessions it had to sell as used cars.   Williams put an additional $15,000 of his money into Viking Dodge in January 1980, as well as another $35,000 borrowed from the Bank which was secured by UCC–1 on all his used cars at Baron Buick.   By investing the additional $50,000, Chrysler agreed to permit Williams to keep the dealership open until another buyer could be found.   However, since there were few buyers of Chrysler dealerships at that time, Williams reluctantly released Viking Dodge to Chrysler Credit on March 12, 1980.   Chrysler obtained a $274,000 deficiency judgment based upon Williams's personal guarantee of the flooring credit.   Additionally, Williams had lost his $50,000 personal investment and the value of his time allocated to Viking Dodge.

Williams then returned full time to Baron Buick, the financial condition of which had been substantially weakened during Williams's ownership of Viking Dodge.   Williams had used a “special” reserve released in April 1979, of $50,000 from Baron Buick to purchase Viking Dodge.12  Additionally, during mid–1979, Baron Buick transferred from $30,000 to $50,000 to Viking Dodge for general operating funds, as well as 20 to 30 used cars.

In March 1980, Baron Buick's commercial checking account was overdrawn.   Concerned with the dealership's financial problems, the Bank and Ross specifically wanted $100,000 to $125,000 additional capital invested in it.   He authorized further overdrafts on the Baron Buick account to meet payroll.   To satisfy the Bank's request, Williams solicited Robert Alcorn for additional capital, who invested $19,000 into Baron Buick as earnest money.   Williams agreed to sell him 50 to 51 percent of Baron Buick for $100,000, and an additional $50,000 if needed.   On March 31, 1980, Ross, Bruno, Williams, Alcorn and Chesrown met at Baron Buick.13  Alcorn agreed to immediately put $100,000 of additional capital in Baron Buick, as soon as the Bank provided a letter of understanding that for six months it would not remove the flooring and would do business as usual on conditional sales contracts.   When Ross agreed to submit this letter, Alcorn left for the state of Washington to raise the funds.   Alcorn promptly forwarded a check for $100,000, payable to Chesrown and Baron Buick, to be deposited when the Bank exchanged the promised letter of understanding.   Williams was given the check by Chesrown on April 10th or 11th and Williams attached it to a deposit slip dated April 11, 1980, for the Bank's Baron Buick commercial account and showed the check to Butler that day.

During the April 12–13 weekend, Baron Buick held a liquidation sale, which drew a good public response resulting in the sale of 30 to 40 cars.   Bruno worked the entire weekend at Baron Buick preapproving credit on the conditional sales contracts.   However, on Monday, Butler rejected all conditional sales contracts Bruno preapproved.   Apparently, a confrontation occurred and Williams withheld the $45,000 generated from the sale, depositing it instead in the Bank of America.   He then showed the Alcorn check to Butler and requested the letter of understanding, but Butler replied “that's between you and Ross.”   Williams explained he could not deliver the check without receipt of the letter and suggested Ross come down.

Ross arrived at Baron Buick April 15, at approximately 6 p.m., but Williams was not there.   The next morning Ross and Butler prepared a demand letter for payment of all flooring liability.   Williams, Ross, Butler and Gary Ellingson (Williams's personal friend and an attorney) met in Williams's office.   Ross was upset and told Williams that he was going to close the place down.   Williams again explained he had the $100,000 check as agreed and offered to deposit it when he was shown the promised letter of understanding.   Ross responded there would be no letter of understanding;  he was closing the place down;  and there was not a “fucking thing” Williams could do about it.   He pulled the keys, ordered guard service, had the dealership locked and chained, and left for Los Angeles.14

After the closure, Williams still controlled the showroom and office.   Consequently, the next day he wholesaled used cars to raise cash to pay his bills and his employees' salaries, as well as the earnest money loans made by Alcorn and Chesrown.   Although he tried to keep the business open, it was impossible without new and used cars.15

On April 25, the Bank filed involuntary bankruptcy proceedings against Baron Buick.   With substantial television and other media coverage, the trustee took physical control of the dealership.16

Bank employees and agents told others that Williams was a thief, was involved in illegal practices, could not be trusted, had stolen 40 cars and his family members were all driving 1980 Buicks.17  These allegations were false, however, the word spread rapidly throughout the automobile finance industry making it impossible for Williams to find work locally.   He was essentially blackballed from the car industry in California as the allegations continued to be relayed for several years.   Williams was eventually reduced to tending bar in Sacramento.


On August 28, 1980, the Bank filed two separate lawsuits against Williams arising from the failure of the two dealerships.   The Baron Buick complaint sought damages based upon the continuing general guarantee which Williams had executed and conversion, while the Viking Dodge complaint sought damages on the general guarantee as well as a promissory note.   Williams cross-complained against the Bank and several of its employees, seeking damages for among other things fraud and negligent misrepresentation.   The Bank's two actions were consolidated for trial, which commenced on August 19, 1985.   During trial, the trial court permitted Williams to file a fourth amended cross-complaint seeking recovery based upon the additional legal theory of breach of the implied covenant of good faith and fair dealing.18  On January 7, 1986, the trial court filed an intended statement of decision favoring Williams, to which the Bank objected.   On February 7, the trial court filed a 47–page statement of decision summarizing its factual and legal conclusions.   The trial court concluded Williams was entitled to prevail on the fifth, sixth and ninth causes of action in the fourth amended cross-complaint, which alleged fraud, negligent misrepresentation and breach of the implied covenant of good faith and fair dealing.   Essentially, the court concluded Ross and the Bank had fraudulently induced Williams to purchase Viking Dodge in early 1979, which fraud ultimately resulted in the closure of Baron Buick in April 1980.   Alternatively, the court concluded the Bank violated the covenant of good faith and fair dealing arising from Williams's personal guarantees.   Monetarily, the court awarded $2,293,554 in compensatory damages to Williams, consisting of loss of Williams's personal investment in Viking Dodge ($50,000), reimbursement for the Chrysler deficiency judgment against Williams based upon his personal guarantee to Viking Dodge ($274,000), emotional distress ($300,000) and loss of income through the time of trial ($1,669,554).   Additionally, the court awarded $2.5 million in punitive damages against the Bank.   The Bank's motion for new trial was denied.19


Asserting no fiduciary duty can ever exist between a commercial borrower and lender, the Bank contends the judgment should be reversed because the trial court erred in finding a fiduciary duty here and applying the breach of that duty as the foundation for the fraud judgment permitting circumvention of the essential elements of justifiable reliance and proximate cause.   Moreover, it argues without a fiduciary relationship Williams failed to prove his fraud claim because the statements found to be actionable were either statements of opinion or nondisclosures rather than affirmative misrepresentations.

 However, perhaps the most fundamental principle of appellate review is that where the trial court's decision is itself correct in law, it will not be disturbed on appeal simply because the trial court relied on erroneous grounds in reaching its conclusion.   In other words, “[i]f right upon any theory of the law applicable to the case, [the decision] must be sustained regardless of the considerations which may have moved the trial court to its conclusion.”   (Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329, 48 P. 117;  D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19, 112 Cal.Rptr. 786, 520 P.2d 10;  Aheroni v. Maxwell (1988) 205 Cal.App.3d 284, 292, 252 Cal.Rptr. 369.)   Because the trial court based its decision alternatively on the causes of actions pleading fraud, negligent misrepresentation and breach of the implied covenant of good faith and fair dealing, the judgment must be affirmed if either fraud or negligent misrepresentation has been proved.   Here, the Bank was not surprised by either theory at trial and these counts were based on affirmative misrepresentations by the Bank to Williams on which he reasonably relied, and not solely predicated upon a fiduciary relationship giving rise to a duty to disclose material information which the Bank had concealed from Williams.

 Generally, the “concept of fraud embraces anything which is intended to deceive, including all statements, acts, concealments and omissions involving a breach of legal or equitable duty, trust or confidence which results in injury to one who justifiably relies thereon.”  (Pearson v. Norton (1964) 230 Cal.App.2d 1, 7, 40 Cal.Rptr. 634;  Okun v. Morton (1988) 203 Cal.App.3d 805, 828, 250 Cal.Rptr. 220.)   Consequently, the elements of actionable fraud giving rise to the tort action for deceit include:  (1) a misrepresentation (false representation, concealment or nondisclosure);  (2) knowledge of falsity (scienter);  (3) intent to defraud or induce reliance;  (4) justifiable reliance;  and (5) resulting damages.  (Okun v. Morton, supra, 203 Cal.App.3d at p. 828, 250 Cal.Rptr. 220;  Orient Handel v. United States Fid. & Guar. Co. (1987) 192 Cal.App.3d 684, 693, 237 Cal.Rptr. 667;  Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1331, 231 Cal.Rptr. 355;  Cicone v. URS Corp. (1986) 183 Cal.App.3d 194, 200, 227 Cal.Rptr. 887;  5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 676, p. 778.)   All of the cited elements must be established in order to find actionable fraud, as the absence of any one element is fatal to recovery.   (Gonsalves v. Hodgson (1951) 38 Cal.2d 91, 101, 237 P.2d 656;  Okun v. Morton, supra, 203 Cal.App.3d at p. 828, 250 Cal.Rptr. 220;  Wilhelm v. Pray, Price, Williams & Russell, supra, 186 Cal.App.3d at p. 1331, 231 Cal.Rptr. 355.)   Within the context of this case, a party to a contract commits actual fraud when doing any of the following acts with the intent to deceive another or simply to induce that individual to enter into a contract:  suggesting as a fact that which is not true by one who does not believe it to be true, or positively asserting, in a manner not warranted by the information known to that person, of that which is not true, though the actor believes it to be true.  (Civ.Code, § 1572, subds. 1, 2.) 20  Williams correctly asserts he alleged and obtained judgment based upon an actual fraud theory within the context of sections 1572 and 1710.   In his fifth cause of action, he only alleged actual fraud based upon affirmative misrepresentations made by Ross on behalf of the Bank.   He did not allege fraudulent concealment by the Bank premised upon any alleged duty of disclosure.21  Although the trial court found fraud based upon not only affirmative misrepresentations, but also for failure to disclose material facts arising from the parties' fiduciary relationship, the court's statements of decision shows it treated the affirmative misrepresentations and the failures to disclose as independent and distinct bases supporting its fraud determination.22  Consequently, the trial court's judgment rests independently upon affirmative misrepresentations unrelated to any duty to disclose arising from a fiduciary relationship and the failure in that context to disclose certain material facts.23

The record is replete with affirmative false representations by Ross on behalf of the Bank, including Viking Dodge was a good dealership;  Viking Dodge was financially sound and a profitable dealership which was making approximately $20,000 per month, when in fact Ross was aware Bugelli had purchased it as a “dump” for repossessions from other dealerships, Bugelli was having financial problems, and Bugelli would not obtain a profit for at least a year at Viking Dodge;  the 73 conditional sales contracts purchased by the Bank from Viking Dodge had been inspected by Ross and were good, when in fact Ross was aware of Bugelli's “ramrodding” sales techniques and 23 actual “unwinds” of conditional sales contracts;  that he was representing Williams's best interests in the acquisition of Viking Dodge when in fact he was representing the adverse interests of the Bank;  the Bank wanted Chrysler to take over the flooring credit of Viking Dodge in order to provide the dealership with additional credit through a “legitimate float,” when in fact the Bank wanted Chrysler to take over the flooring so that its own risk and liability could be substantially reduced;  he was monitoring the situation at Viking Dodge, when construed in the light of the representation Ross was representing Williams in the purchase at minimum implied the Bank would protect Williams's interests through the surveillance;  and the Bank would back Williams like they had “always done business” and continue to purchase additional sales contracts from Viking Dodge.   However, consistent with the allegations of the complaint, the essence of the actual misrepresentations related to Ross's representations Viking Dodge was a good and financially sound dealership, he was representing Williams in the deal, he was monitoring the situation at Viking Dodge and he had inspected the conditional sales contracts of the dealership and found them all to be good.24

The crucial issue here is whether substantial evidence supports the trial court's determination Williams proved his fraud claim by showing he reasonably relied upon Ross's and the Bank's false affirmative representations regarding the financial health of Viking Dodge.

 The determination of whether reliance is justified under the circumstances of a particular case must be made by evaluating whether reliance was justified in light of a party's own knowledge and experience (Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 503, 198 Cal.Rptr. 551, 674 P.2d 253) and without an independent inquiry and investigation (Wilhelm v. Pray, Price, Williams & Russell, supra, 186 Cal.App.3d at p. 1332, 231 Cal.Rptr. 355).   Consequently, where a trial court's finding of fact is challenged on appeal for lack of substantial evidence, our inquiry is limited to determining whether there is substantial evidence, contradicted or uncontradicted, supporting the challenged finding.  (Ibid.;  Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881, 92 Cal.Rptr. 162, 479 P.2d 362.)

 “Testimony concerning one's own reliance is legally insufficient evidence if such reliance is without justification [citation];  a party plaintiff's misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance.   [Citation.]  ‘If the conduct of the plaintiff in light of his own intelligence and information was manifestly unreasonable, ․ he will be denied a recovery.’  (Seeger v. Odell (1941) 18 Cal.2d 409, 415 [115 P.2d 977] ․;  see also Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 503 [198 Cal.Rptr. 551, 674 P.2d 253]․)”  (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 54–55, 248 Cal.Rptr. 217.)   However,

“[i]t is only where a party to whom a representation is made has the means at hand for determining its truth or falsehood and resorts to such means, without interference by the other party, and after investigation learns that the statement was false, that he is precluded from asserting that he relied upon the representation.”  (Blackman v. Howes (1947) 82 Cal.App.2d 275, 279, 185 P.2d 1019;  Mercer v. Elliott (1962) 208 Cal.App.2d 275, 279, 25 Cal.Rptr. 217.)

In other words, if one is justified in relying and in fact does rely upon false representations, recovery will not be precluded simply because means of knowledge were available.  “In such a case, no duty in law is devolved upon him to employ such means of knowledge.”  (Blackman v. Howes, supra, 82 Cal.App.2d at p. 279, 185 P.2d 1019.) 25  Moreover, “[n]egligence on the part of the plaintiff in failing to discover the falsity of a statement is no defense when the misrepresentation was intentional rather than negligent.   [Citations.]  As a general rule negligence of the plaintiff is no defense to an intentional tort.  [Citation.]  The fact that an investigation would have revealed the falsity of the misrepresentation will not alone bar ․ recovery․”  (Seeger v. Odell (1941) 18 Cal.2d 409, 414–415, 115 P.2d 977.) 26

 Guided by the foregoing, we conclude ample evidence supports the trial court's determination Williams justifiably and reasonably relied upon the misrepresentations of Ross and the Bank.   The record establishes that in general bank-financed automobile dealership business relationships are more like joint ventures than ordinary commercial arms-length lender-borrower activities.   As Williams explained in his testimony, he was always advised by the Bank his accepting it as a partner would guarantee a successful financial relationship.   Our detailed factual summary highlights the underpinning of this relationship was Williams's complete reliance on the financial expertise of the Bank which was provided complete access to all financial information within the dealerships.   All parties, including the Bank officials, conceded Williams was unsophisticated when it came to reading and evaluating dealer financial statements.   All Bank officials were aware Williams totally relied upon and trusted the Bank and its representatives (Walker, Butler and Ross) in all matters pertaining to finance because of his deficiencies in matters of financing.

Granted, Williams had access to the financial statements of Viking Dodge before acquiring it;  however, he accepted Ross's characterization of their “bottom line” after being advised Ross had examined them and was monitoring the dealership on a daily basis.   This is consistent with the conceded history of the Bank's relationship and Ross's superior knowledge and expertise in financial matters.   In fact, during his Viking Dodge tenure, Williams never knew how to interpret a Dodge statement.   Similarly, Williams did not review the dealership's conditional sales contracts, because Ross had done so and assured him they were all good.

Ross's representation he was representing Williams's interests in the negotiations for Viking Dodge and would get him a good deal, was not only false, but specifically intended to obtain Williams's reliance on his advice.   That this ploy was successful is corroborated by evidence Ross dictated the terms of the sale and Williams agreed with whatever Ross stated.   Williams's passive conduct throughout the negotiating is consistent with not only the “partner-type” relationship the Bank had nurtured with him, but also his reliance on Ross's affirmative representations he was advancing Williams's interests.

The Bank, however, characterizes Williams's claim of justifiable reliance as only related to Ross's opinion Viking Dodge was a “good deal.”   The Bank emphasizes the evidence shows Williams ignored the advice and information he received from Bugelli, Butler 27 and his partner Mayfield regarding the problems at Viking Dodge.   Emphasizing Williams's claim of reliance is solely limited to his own testimony, the Bank argues it is not credible evidence and not substantial enough to support the trial court's finding.   This view ignores the totality of Ross's representations and the context in which they were made.   Even assuming Williams were aware of the financial problems shackling Viking Dodge before the close of escrow, it does not negate the court's finding his reliance upon Ross's misrepresentations to be reasonable.   Rather, the record viewed as a whole supports the conclusion Williams recognized, trusted and relied upon Ross's superior financial expertise in dealing with “problem” and struggling dealerships.   Granted, Butler off-handedly declared to Williams before the close of escrow that his purchase of Viking Dodge would result in bailing out of the Bank and the bankruptcy of Baron Buick.   However, the record is replete with corroboration that all the many automobile and bank financing personnel who testified considered Ross to be the financial wizard in this area of expertise.   No one so described Butler, who acknowledged Ross's superior financial expertise.   In any event, under the above authorities, neither Williams's knowledge nor the nature of his conduct preclude his asserting justifiable reliance upon Ross's misrepresentations.

The record firmly establishes Ross was considered by all as the automobile dealership financial expert;  as Williams's perceived personal friend he purported to represent the latter's interests;  and Williams could justifiably rely on Ross's representations in light of Ross's expertise and experience.   However, the Bank further challenges the reasonableness of Williams's reliance in light of Ross's and the Bank's patently adverse interests in the Viking Dodge deal.   Granted, Ross had a general reputation in the industry of protecting the Bank's interests.   Nevertheless, an adversarial relationship does not necessarily preclude reasonable reliance especially here where Ross specifically assured Williams he was acting in Williams's best interests in saddling him with Viking Dodge's problems.   The Restatement Second of Torts section 543 provides:

“The recipient of a fraudulent misrepresentation of opinion is justified in relying upon it if the opinion is that of a person whom the recipient reasonably believes to be disinterested and if the fact that such person holds the opinion is material.”

Applying this rule is appropriate “when the person who misrepresents his opinion has an interest in the transaction adverse to that of the recipient but purports to be disinterested.”  (Rest.2d, Torts, § 543, com. a.)   Ross's and the Bank's undisclosed interest in Williams's acquiring Viking Dodge was to release the Bank from its flooring financing and have it replaced by Chrysler.   In light of his expertise, his opinion was not only material but highly persuasive to Williams.28

The Bank also argues the trial court's fraud theory is deficient because it rests upon findings of fact which show Viking Dodge's failure was caused by being too highly leveraged for the economic crisis facing all dealerships and Chrysler in particular.   However, the trial court precisely found the restrictive policies of the Bank concerning the purchasing of conditional sales contracts combined with other factors to cause Viking Dodge to fail.   The Bank's argument also misses the mark, because Williams's theory of recovery is not that the Bank's fraud caused Viking Dodge to fail, but rather induced him into purchasing a dealership which according to its own experts was doomed to fail from the time of purchase.


 The necessary elements for a cause of action sounding in negligent misrepresentation include:  (1) the representation as to a past or existing material fact;  (2) the representation must have been untrue;  (3) regardless of the defendant's actual belief, the representation must have been made without any reasonable ground for believing its truth;  (4) defendant must have made the representation with the intent to induce plaintiff's reliance;  (5) plaintiff must have been unaware of the false character of the representation, acted in reliance upon its truth and been justified in relying upon it;  and (6) plaintiff sustained damages as a result of relying upon the truth of the representation.  (Christiansen v. Roddy (1986) 186 Cal.App.3d 780, 785–786, 231 Cal.Rptr. 72;  Walters v. Marler (1978) 83 Cal.App.3d 1, 17, 147 Cal.Rptr. 655, disapproved on other grounds in Gray v. Don Miller & Associates, Inc., supra, 35 Cal.3d at p. 507, 198 Cal.Rptr. 551, 674 P.2d 253.)

“As is true of negligence, responsibility for negligent misrepresentation rests upon the existence of a legal duty, imposed by contract, statute or otherwise, owed by a defendant to the injured person.  [Citations.]․

“ ‘One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated, ․ facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.’  [Citations.]”  (Eddy v. Sharp (1988) 199 Cal.App.3d 858, 864, 245 Cal.Rptr. 211, quoting Rest.2d Torts, § 551, subd. (2)(e).)

 Here, the record amply supports the trial court's determination Ross had no reasonable ground for believing Viking Dodge constituted a good, financially sound and profitable venture with good conditional sales contracts;  Williams could succeed in operating the dealership;  or that he was representing Williams's interests in the acquisition of Viking Dodge.   Ross always knew the Bank had engineered Bugelli's purchase of Viking Dodge so as to provide him a “dump” for repossessions from his other failed dealerships and that Viking Dodge could not be a profitable venture for at least a year, even if Chrysler's lurking financial difficulties were overcome.   Moreover, during March–April 1979, Ross had his bank examiners monitoring Viking Dodge's operations on a daily basis.   Ross not only personally reviewed the financial statements which revealed substantial losses during the first quarter of 1979, but he was also aware of the 23 “unwinds” of conditional sales contracts.   Finally, as icing on the cake, Ross served on the Bank's consumer loan committee, which was carefully monitoring Chrysler's financial condition and the Bank's outstanding credit to Chrysler dealerships which was precariously at risk.   Accordingly, substantial evidence supports the trial court's judgment on the deceit theory of negligent misrepresentation.


Emphasizing the Bank's relationship with Williams was not extraordinary within the automobile industry, the Bank contends the trial court erred in “creating” a fiduciary duty running from a lender to its borrower and, in any event, the record is devoid of any evidence supporting any implied findings the Bank accepted fiduciary responsibility toward Williams.

The trial court found “[a] true fiduciary relationship, in fact, existed between bank officials and James Williams.”   It did not hold the relationship between a borrower and a lender constituted a fiduciary relationship as a matter of law.   Consequently, the issues before us are whether a fiduciary relationship can ever arise between a commercial borrower (or guarantor) and a lender and, if so, whether substantial evidence supports the trial court's determination here.

 As a general rule, the relationship between a bank and a depositor, borrower or customer is that of a creditor/debtor, dealing at arms-length, and not of a fiduciary giving rise to a duty of disclosure upon the bank.  (See e.g., Lee v. United Federal Sav. & Loan Ass'n (Ala.1985) 466 So.2d 131, 134;  Citizens and Southern Nat. Bank v. Arnold (1977) 240 Ga. 200, 240 S.E.2d 3, 4;  Delta Diversified v. Cit. & South. Nat. Bank (1984) 171 Ga.App. 625, 320 S.E.2d 767, 776;  Limoli v. First Georgia Bank (1978) 147 Ga.App. 755, 250 S.E.2d 155, 157;  Farmer City State Bank v. Guingrich (1985), 139 Ill.App.3d 416, 94 Ill.Dec. 1, 7, 487 N.E.2d 758, 764;  DeWitt Cty. Public Bldg. Com'n v. DeWitt Cty. (1984) 128 Ill.App.3d 11, 83 Ill.Dec. 82, 93, 469 N.E.2d 689, 700;  Bank Computer v. Continental Ill. Nat. Bank (1982) 110 Ill.App.3d 492, 66 Ill.Dec. 160, 168, 442 N.E.2d 586, 594;  McErlean v. Union Nat. Bank of Chicago (1980) 90 Ill.App.3d 1141, 46 Ill.Dec. 406, 412, 414 N.E.2d 128, 134;  Kurth v. Van Horn (Iowa 1986) 380 N.W.2d 693, 696;  First Bank of Wakeeney v. Moden (1984) 235 Kan. 260, 681 P.2d 11, 13;  Denison State Bank v. Madeira (1982) 230 Kan. 684, 640 P.2d 1235, 1243;  Dugan v. First Nat. Bank in Wichita (1980) 227 Kan. 201, 606 P.2d 1009, 1014;  Centerre Bank of Kansas City v. Distributors (Mo.App.1985) 705 S.W.2d 42, 53;  Umbaugh Pole Bldg. Co., Inc. v. Scott (1979) 58 Ohio St.2d 282, 390 N.E.2d 320, 323;  Federal Land Bank of Baltimore v. Fetner (1979) 269 Pa.Super. 455, 410 A.2d 344, 348;  Burwell v. South Carolina Nat. Bank (1986) 288 S.C. 34, 340 S.E.2d 786, 790.)   However, while there exists no per se fiduciary relationship between a bank and its customers, a fiduciary duty may nevertheless arise from their business relationship when the customer reposes trust in a bank and relies on the bank for financial advice or under other special circumstances.  (See, e.g., Bank of Red Bay v. King (Ala.1985) 482 So.2d 274, 285;  Farmer City State Bank v. Guingrich, supra, 94 Ill.Dec. at p. 7, 487 N.E.2d at p. 764;  Bank Computer v. Continental Ill. Nat. Bank, supra, 66 Ill.Dec. at p. 168, 442 N.E.2d at p. 594;  McErlean v. Union Nat. Bank of Chicago, supra, 46 Ill.Dec. at p. 412, 414 N.E.2d at p. 134;  Federal Land Bank of Baltimore v. Fetner, supra, 410 A.2d at p. 348;  Burwell v. South Carolina Nat. Bank, supra, 340 S.E.2d at p. 790;  Kurth v. Van Horn, supra, 380 N.W.2d at p. 696;  Richfield Bank & Trust Co. v. Sjogren (1976) 309 Minn. 362, 244 N.W.2d 648, 650;  Deist v. Wachholz (1984), 208 Mont. 207, 678 P.2d 188, 192;  Dolton v. Capitol Federal Sav. & Loan Ass'n (Colo.App.1981) 642 P.2d 21, 23;  Teeling v. Indiana Nat. Bank (Ind.App.1982) 436 N.E.2d 855, 858;  Macon Cty. Livestock Mkt. v. Ky. State Bank (Tenn.App.1986) 724 S.W.2d 343, 349–350;  Tokarz v. Frontier Federal Sav. & Loan Ass'n (1982) 33 Wash.App. 456, 656 P.2d 1089, 1092;  Klein v. First Edina National Bank (1972) 293 Minn. 418, 196 N.W.2d 619, 623;  First National Bank in Lenox v. Brown (Iowa 1970) 181 N.W.2d 178, 182;  Stewart v. Phoenix Nat. Bank (1937) 49 Ariz. 34, 64 P.2d 101, 106;  Dugan v. First Nat. Bank in Wichita, supra, 606 P.2d at pp. 1014–1015;  Bachmeier v. Bank of Ravenswood (N.D.Ill.1987) 663 F.Supp. 1207, 1225;  Shea v. H.S. Pickrell Co., Inc. (App.1987) 106 N.M. 683, 748 P.2d 980, 982–983.)

The recognition of a fiduciary relationship between a lending institution and a borrower and the accompanying duty of disclosure is the result of contemporary banking business practices and procedures.29  Indeed,

“[p]resent-day commercial transactions are not, as in past generations, primarily for cash;  rather, modern banking practices involve a highly complicated structure of credit and other complexities which often thrust a bank into the role of an advisor, thereby creating a relationship of trust and confidence which may result in a fiduciary duty upon the bank to disclose facts when dealing with the customer.”  (Tokarz v. Frontier Federal Sav. & Loan Ass'n, supra, 656 P.2d at p. 1092;  Stewart v. Phoenix Nat. Bank, supra, 64 P.2d at p. 106;  70 A.L.R.3d 1344, 1347.)

 Although the “special circumstances” relied on by the courts to serve as a predicate for finding a fiduciary relationship and accompanying duty upon the bank to disclose certain information to borrowers or customers vary, the relationship and obligation to disclose generally arises where the bank undertakes to advise a customer as a part of the services it provides (see e.g., Burwell v. South Carolina Nat. Bank, supra, 340 S.E.2d at p. 790);  where there is a repose of trust by the customer along with an acceptance or invitation of such trust on the part of the lending institution (Dolton v. Capitol Federal Sav. & Loan Ass'n, supra, 642 P.2d at pp. 23–24);  where the bank had been the financial advisor for the customer for many years and the bank's advice had been relied upon (Deist v. Wachholz, supra, 678 P.2d at pp. 193–194;  Pigg v. Robertson (Mo.App.1977) 549 S.W.2d 597;  Stewart v. Phoenix Nat. Bank, supra, 64 P.2d at p. 106);  where the bank dealt directly with the customer regarding a matter involved in the litigation, had knowledge of the reliance and confidence of the customer, and especially where the bank stood to profit from the nondisclosure (Dugan v. First Nat. Bank in Wichita, supra, 606 P.2d at p. 1015);  where the bank loaned money to a customer to purchase a business, failed to disclose its superior information that business was experiencing financial difficulties, represented to the contrary it was a “going” business and the buyer should be able to “do all right,” and stood to benefit from the transaction by reducing its loan on the business and obtaining a consignor of substantial means (First National Bank in Lenox v. Brown, supra, 181 N.W.2d at p. 182);  where the bank made a loan for a particular purpose knowing that purpose could not be fulfilled and that it involved fraudulent activities of one of its depositors (Richfield Bank & Trust Co. v. Sjogren, supra, 244 N.W.2d at pp. 650–652);  where the bank loans a customer money for investment with and deposit in the account of another customer whom the bank knows is involved in fraudulent activity and stands to benefit by applying the loan proceeds to offset the latter's overdrawn account (Barnett Bank of West Florida v. Hooper (Fla.1986) 498 So.2d 923, 925);  where the bank knows or has reason to know a customer is placing his/her trust and confidence in the bank and relying on the bank for counsel and information (Klein v. First Edina National Bank, supra, 196 N.W.2d at p. 623);  where the bank retained borrower's funds, disbursed them without authorization and demanded repayment of loan (Lash v. Cheshire County Sav. Bank, Inc. (1984) 124 N.H. 435, 474 A.2d 980, 981–982);  where a mortgagee bank advised and induced mortgagers to sell land under threat of foreclosure knowing the mortgaged property could have been sold for approximately $35,000 more (First American Nat. Bank of Iuka v. Mitchell, supra, 359 So.2d at p. 1380);  and, where the bank officer failed to disclose a known material fact to the borrower, there had existed a long-standing relationship between that officer and the borrower and the former had recommended the loan and negotiated its terms for the latter (Earl Park State Bank v. Lowmon (1928) 92 Ind.App. 25, 161 N.E. 675;  In re Letterman Bros. Energy Securities Litigation (5th Cir.1986) 799 F.2d 967, 975).  (See generally, Bank as Fiduciary—Duty of Disclosure (1976) 70 A.L.R.3d 1344.)

 California courts have likewise recognized that a fiduciary relationship may exist between a borrower and lender (see Rutherford v. Rideout Bank (1938) 11 Cal.2d 479, 481–482, 486, 80 P.2d 978;  Bank of America v. Sanchez (1934) 3 Cal.App.2d 238, 242–244, 38 P.2d 787;  see also Alexander v. State Capital Co. (1937) 9 Cal.2d 304, 311, 70 P.2d 619, citing Sanchez with apparent approval by analogizing parties' relationship).   Such a relationship of trust and confidence arises between a bank and its loan customers where the borrower perceives his relationship with the bank officer as very close, relies on the bank officer's financial advice, discloses confidential financial information to the bank officer, specifically relies on the bank's representation the guarantees would be released upon consummation of a merger when in fact the bank had represented to others the guarantees would not be released, and the bank's position of benefiting from the merger.  (Barrett v. Bank of America (1986) 183 Cal.App.3d 1362, 1369, 229 Cal.Rptr. 16.)   Consequently, in California and those other jurisdictions which harbor the majority view recognizing the possibility of a confidential relationship arising between a bank and its customers, the existence of such a relationship is generally determined as a matter of fact, predicated upon the facts of the specific case before the court.   Needless to say, the extent of the factual showing required has varied from jurisdiction to jurisdiction.   (Reid v. Key Bank of Southern Maine, Inc. (1st Cir.1987) 821 F.2d 9, 17.)

“ ‘It is settled by an overwhelming weight of authority that the principle [as to confidential relationship] extends to every possible case in which a fiduciary relation exists as a fact, in which there is confidence reposed on one side and the resulting superiority and influence on the other.   The relation and the duties involved in it need not be legal.   It may be moral, social, domestic, or merely personal.   Hence, the rule embraces both technical fiduciary relations and those informal relations which exist wherever one man trusts in and relies upon another.’ ”  (Pryor v. Bistline (1963) 215 Cal.App.2d 437, 446, 30 Cal.Rptr. 376, quoting 23 Am.Jur. at p. 764;  Bolander v. Thompson (1943) 57 Cal.App.2d 444, 447, 134 P.2d 924.)

 Relying upon the standard set forth in BAJI No. 12.36,30 the trial court correctly concluded a fiduciary relationship may well exist between a lending institution and a borrower, as substantial evidence supports its determination a true fiduciary relationship existed in fact between the Bank officials and Williams.   Here, the record is replete with evidence Williams developed very close and trusting relationships with Walker, Butler and Ross, both business and social in character.   Bank officials actively fostered Williams's perception the Bank and its representatives were his partners, actively engaged in the financing and management of Baron Buick.   In financial matters, Williams completely relied on the superior knowledge of Walker, Butler and Ross.31  As the trial court found based upon substantial evidence, the “Williams–Security Pacific National Bank [relationship] went far beyond a lender-borrower relationship.   It was an all-encompassing, mutually beneficial, day-to-day relationship in which both sides reposed trust and confidence in one another․  The relationship here, had much the makings of a mutually beneficial partnership.   Williams did in fact repose trust and confidence in the integrity and fidelity and financial judgments of these bank officers and the bank officials knew it.”

Consistent with the cited case law emanating from the 1937 Stewart decision and continuing through its contemporary progeny, the trial court's factual finding that a fiduciary relationship existed between Williams and the Bank is fully supported by the special circumstances present here.   Given the nature of the parties' relationship, the Bank knowingly undertook to act on behalf and for the benefit of Williams in the purchase of Viking Dodge.   Regardless how Ross's role is characterized, he, in fact, orchestrated the deal between Bugelli and Williams, as both were “under his charge.”   Similar to the factual scenario within First National Bank in Lenox v. Brown, supra, 181 N.W.2d 178, the Bank here secretly intended to improve its unfavorable financial position in Viking Dodge by misrepresenting it as a good prosperous venture, persuading Williams to purchase the failing dealership and securing his personal guarantee for that worthless dealership's indebtedness while removing its flooring liability and replacing it with Chrysler's, without revealing the serious financial problems Viking Dodge was experiencing as well as its underlying purpose of freeing it from its flooring liability.   In essence, the Bank stood in a fiduciary relationship to Williams because it had superior knowledge regarding the financial condition of Viking Dodge because of its prior and current relationship with that dealership and knew Williams trusted and relied upon its expertise in financial matters including the acquisition of Viking Dodge.

 Relying on language in Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 197 Cal.Rptr. 783, 673 P.2d 660, the Bank contends that before a fiduciary relationship can be recognized its affirmative consent to act as a fiduciary is required and the record is devoid of either a finding or any evidence it ever consented to act on behalf of Williams in a fiduciary capacity.   Granted, before a party can be charged with a fiduciary obligation, that party “must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.”  (Id. at p. 221, 197 Cal.Rptr. 783, 673 P.2d 660.)   However, necessarily implied within the trial court's ultimate finding of a fiduciary relationship here was the Bank's knowing and purposeful conduct of acting on Williams's behalf in the acquisition of Viking Dodge.   Such an implication arises from the very nature of Ross's conduct, encouraging Williams's acquisition of Viking Dodge and dictating not only the negotiation, but the ultimate “deal.”   Moreover, the parties' relationship as evinced from the entire record establishes a close and trusting relationship between the parties, akin to a partnership, where both parties recognized Williams's reliance.  (See, e.g., id. at p. 222, fn. 22, 197 Cal.Rptr. 783, 673 P.2d 660.)

 Contrary to the Bank's assertion, imposing fiduciary duties is consistent with public policy where the Bank assumes not only an active advisory role, but also that of a dominant participant.   The underlying impetus for recognizing de facto fiduciary relationships is the public policy consideration of protecting those who are victimized by fiduciary relations for simply trusting and relying upon another and thus preventing unjust enrichment.   Such recognition is compelled where under the circumstances here the Bank, as the principal lender, assumed the role of a “control creditor” by becoming so involved in Williams's daily operations at his dealerships and orchestrated his expansion into Viking Dodge, so as to erode away his separate identity.  (See Schechter, The Principal Principle:  Controlling Creditors Should Be Held Liable For Their Debtors' Obligations (1986) 19 U.C. Davis L.Rev. 875, 878–880;  Comment, The Fiduciary Controversy:  Injection of Fiduciary Principles Into The Bank–Depositor and Bank–Borrower Relationships (1987) 20 Loyola L.A.L.Rev. 795, 800–801;  Union State Bank v. Woell (N.D.1989) 434 N.W.2d 712, 721, recognizing concept that “actual day-to-day involvement in management and operations of the borrower or the ability to compel the borrower to engage in unusual transactions” shows the requisite “control” by a lending institution over a borrower.)   Simply stated, public policy shall never conflict with imposing fiduciary responsibilities where a commercial lender assumes such a dominant role as the Bank did here in Williams's business ventures, so as to render Williams the marionette and the Bank the puppeteer.32  In other words, case law recognizes a fiduciary relationship arises between commercial lenders and clients where the bank invites, and the customer reposes, trust and confidence under circumstances transcending an ordinary commercial transaction.  (Id. at p. 799.)


Contending it was subject to a “trial by ambush” partially because the trial court permitted Williams to add tort claims to his cross-complaint at trial, the Bank argues the delay was unexcused and the late amendment was extremely prejudicial, injecting new triable issues of fiduciary duty and bad faith within the context of a tortious breach of the implied covenant of good faith and fair dealing.   The Bank argues it had taken no pre-trial discovery regarding these issues since they were raised well after the discovery cut-off date.   It asserts the amendment so expanded the scope of the evidence from limited specific alleged misrepresentations to encompass a complete analysis of its financing practices, an “open sesame” scenario for which it could not adequately prepare because of the lack of discovery and time to prepare.

 A trial court has broad discretion to allow an amendment to any pleading in the furtherance of justice at any time before or after the commencement of trial.  (Higgins v. Del Faro (1981) 123 Cal.App.3d 558, 564, 176 Cal.Rptr. 704;  Weingarten v. Block (1980) 102 Cal.App.3d 129, 134, 162 Cal.Rptr. 701;  Code Civ.Proc., §§ 473, 576.)  “Where no prejudice is shown to the adverse party, the liberal rule of allowance prevails.”   (Higgins v. Del Faro, supra, 123 Cal.App.3d at p. 564, 176 Cal.Rptr. 704;  Weingarten v. Block, supra, 102 Cal.App.3d at p. 134, 162 Cal.Rptr. 701.)   Indeed, as a matter of policy, a trial court's decision permitting amendment will be upheld unless a manifest or gross abuse of discretion is clearly established.  (Weingarten v. Block, supra, 102 Cal.App.3d at p. 134, 162 Cal.Rptr. 701;  Bedolla v. Logan & Frazer (1975) 52 Cal.App.3d 118, 135, 125 Cal.Rptr. 59;  Daum Development Corp. v. Yuba Plaza, Inc. (1970) 11 Cal.App.3d 65, 75, 89 Cal.Rptr. 458.)

 Here, early in the trial, the court permitted Williams to amend his cross-complaint to allege a tortious breach of the covenant of good faith and fair dealing and a fiduciary relationship.   Williams's motion to file such an amendment approximately two months earlier had been denied without prejudice to renew at the time of trial.   On the day of trial, he renewed his motion.   Within its statement of decision, the trial court addressed the concerns the Bank emphasizes on this appeal, and explained:

“Up until trial Williams had been deposed ten times, in addition he testified two times in the bankruptcy proceeding.   The facts giving rise to the alleged breach were discovered by the bank in painful detail.   In addition the trial lasted from August 19 to October 31, 1985, with final argument not until December 3.   No surprise can be claimed.   The court allowed broad inquiry into every facet of the bank-Williams relationship.   The breach of the covenant of good faith and fair dealing is based on the same acts alleged to be fraudulent by Williams and on [the] same contracts which the bank relied in its case in chief.   In such a case the amendment relates back to the filing of the cross complaint.  [Citations.]  The statute of limitations has not run and the act of allowing amendments such as this is discretionary with the court.   [Citation.]”

The Bank has failed to meet its burden of establishing a clear abuse of discretion.   Preliminarily, the bad faith tort cause of action is predicated upon covenants arising from the same contracts the Bank relies upon in its case in chief and the same conduct which Williams claimed amounted to fraud.   Moreover, Williams's request was not designed to surprise or prejudice the Bank, as his counsel attempted the same amendment in June 1985, two months before trial when it was denied without prejudice.   At the time of the June motion, plaintiff's counsel had had the case for approximately eight months and the primary case precedent upon which Williams relies for his ninth cause of action for breach of the implied covenant of good faith and fair dealing of Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 206 Cal.Rptr. 354, 686 P.2d 1158, did not become final until November 15, 1984.   Accordingly, any delay in bringing the amendment was neither unreasonable nor unexcusable as a matter of law.   Even more significantly, the Bank was aware Williams's affirmative defense to its action to recover under the guarantee was expressly based on its contractual breach of the covenant of good faith and fair dealing.   This contractual breach theory was directed at precisely the same conduct as the tortious breach of covenant theory, and had put the Bank on notice of the need to defend against evidence of its specific acts of misconduct to which it now claims surprise.   In fact, the Bank had been given permission to further depose Williams and to serve further interrogatories directly on this issue some two months earlier.   Only the potential damages differ.   Accordingly, absent a long unexcused delay and any resulting prejudice to plaintiff, we conclude the trial court did not abuse its discretion in permitting Williams to amend his cross-complaint to add only a new legal theory for recovery based upon the same contracts and allegations of fraud which had been pled several years earlier.   Indeed,

“[c]ounsel on the firing line in an actual trial must be prepared for surprises, including requests for amendments of pleading.   They cannot ask that a judgment afterwards obtained be set aside merely because their equilibrium was slightly disturbed by an unexpected motion.   In order to reverse a case on any such ground there must be a showing that actual unfairness or obvious prejudice has resulted from the allowance of such an amendment, and there has been no such showing in this case.   The court acted within proper limits of discretion in allowing the amendment.”  (Posz v. Burchell (1962) 209 Cal.App.2d 324, 334, 25 Cal.Rptr. 896.)


 Characterizing the evidence relating to eight unrelated dealerships as completely irrelevant, inflammatory and prejudicial, the Bank contends the trial court erred in admitting the “similar acts” testimony over objection which permitted the court to hear allegations of bankruptcy fraud, assault and battery,33 bribery and sexual harassment 34 by owners of the eight unrelated dealerships who bore substantial personal animosity against both Ross and the Bank.   It asserts the trial court's justification for admitting the challenged evidence of allowing the Bank to conduct a broad inquiry at trial into these dealerships does not withstand analysis unless “completely blind and unprepared cross-examination is a substitute for pretrial discovery․”

Although the proffered evidence was admitted apparently under Evidence Code sections 1101, subdivision (b) and 1105, the Bank challenges the evidence as being irrelevant under Evidence Code section 1105 to prove the Bank's custom within its opening brief.35  Essentially, it contends the eight dealerships Williams sought to compare with Viking Dodge and Baron Buick involved different geographical markets, economic periods, alleged improprieties, collateral, bank officers, cities and various other factors, while the only facts in common were that the Bank extended credit to these dealerships which had failed and each owner developed a great personal dislike for both Ross and the Bank.

Focusing on the specific evidence the Bank's opening brief cites as admitted in error, Williams contends it was relevant to Ross's reputation for telling the truth, probative of his credibility as a key witness in this highly disputed evidentiary case and thus admissible under Evidence Code section 1101, subdivision (c).36  Williams asserts the “similar acts” evidence was admissible under Evidence Code section 1101, subdivision (b) permitting the introduction of evidence to prove motive, opportunity, intent, preparation, plan and knowledge, to show the Bank's conduct as to him was fraudulent and in bad faith.  (See e.g., The Atkins Corporation v. Tourny (1936) 6 Cal.2d 206, 215, 57 P.2d 480, and its progeny.) 37  Williams further urges the evidence was relevant to prove the Bank's habit and custom (Evid.Code, § 1105) in using Ross as a crisis manager to deal with financially troubled automobile dealerships and that the Bank dealt with Williams in conformity with its established customary procedures.   In addition, Williams asserts the evidence was relevant in assessing punitive damages by establishing the highly reprehensible conduct of the Bank constituted a part of the “crisis management” policy employed against other financially troubled automobile dealerships as well and “unless deterred through a strong sanction, would be employed against other dealerships in the future.”   As we shall explain, we conclude the evidence was properly admitted as evidence of habit and custom corroborating Williams's version of how the Bank dealt with him.

Here, the matter was called to trial on August 19, 1985.   Before the jury was impaneled, Williams renewed his motion to amend his cross-complaint to allege the tort of breach of the implied covenant of good faith and fair dealing.   At the same time, he sought an order permitting the admission of the challenged “similar acts” evidence.   The matter was deferred until the trial court received a written offer of proof.   On September 3, 1985, after the jury was impaneled, opening statements made and evidence received, Williams filed his written offer of proof.   After brief oral argument, the court permitted the filing of the fourth amended cross-complaint to state a cause of action for bad faith and declared the evidence of purported similar acts would be permitted.

During cross-examination, Ross was confronted with questions regarding his alleged assault and battery on dealer Sergeant, a purported payment by him on behalf of the Bank to Gustafson to induce him to avoid bankruptcy, his alleged aggressive and violent conduct directed at other dealers, and his devious conduct regarding Leonard's dealership designed to give the Bank priority over other creditors.   On September 5, the Bank moved for reconsideration as well as for mistrial.   Essentially simultaneously, Williams filed his offer of proof regarding the similar acts, asserting their admissibility under Evidence Code sections 1101, subdivision (b), 1104 and 1105, and generally setting forth the ultimate facts and which witnesses would provide testimony probative thereof.   Although the Bank's motions were denied, the trial court stated it would give the Bank “every reasonable opportunity to do what [it] must, so as far as discovery is concerned, in light of the time restraints we've got with an on-going trial.”   In doing so, the trial court noted the Bank's counsel objected to Williams's counsel's inquiries regarding prior similar acts during the deposition of Ross as not relevant and ordered him not to answer.38  The court adjourned the case until the following Monday, four days hence.

 Preliminarily, the Bank's burden on this evidentiary issue is threefold:  (1) establish the evidence was inadmissible and thus erroneously admitted;  (2) establish the trial court relied upon the inadmissible evidence in reaching its decision;  and (3) establish the record includes no other evidence which would support the trial court's findings and thus the error was prejudicial.   This burden is the result of two fundamental rules of appellate review:  First, no judgment shall be set aside for improperly admitted evidence unless an examination of the entire cause shows it is reasonably probable a result more favorable to the appellant would have been reached absent the error.  (Cal. Const., art. VI, § 13;  Evid.Code, § 353, subd. (b);  Brokopp v. Ford Motor Co. (1977) 71 Cal.App.3d 841, 853, 139 Cal.Rptr. 888, Corson v. Brown Motel Investments, Inc. (1978) 87 Cal.App.3d 422, 428, 151 Cal.Rptr. 385.)   Secondly, an appellate court will not reverse a court-tried judgment on the basis of irrelevant evidence, unless the record shows the trial court relied on that evidence in making its decision.  (White v. White (1890) 82 Cal. 427, 452, 23 P. 276;  Claremont Press Pub. Co. v. Barksdale (1960) 187 Cal.App.2d 813, 818, 10 Cal.Rptr. 214.)   Consequently, under these circumstances, the trial court's reliance is the sine qua non for prejudice, in the absence of any other evidence supporting the trial court's finding.39  However, needless to say, where the issue is close, the evidence is in conflict and appellant establishes the trial court relied on improperly admitted evidence over objection, a record which sheds no light on what weight the trial court attached to the challenged evidence will support the inference of prejudice.  (Title Insurance etc. Co. v. Ingersoll (1908) 153 Cal. 1, 9, 94 P. 94;  Wilson v. Manduca (1965) 233 Cal.App.2d 184, 189–190, 43 Cal.Rptr. 435, and cases there cited.)   We examine the challenged evidence which the court admitted.

Pursuant to his written offer of proof, Williams sought to introduce the testimony of several automobile dealers that the Bank enticed them to transfer their commercial checking accounts and finances to it through the development of a personal trust relationship between each dealer and the local area vice-president in charge of automotive financing; 40  this trust relationship was established over a period of years and was considered by the parties to be a “partnership”;  Ross was involved in the purchase or sale of several specific dealerships;  the Bank would provide them capitalization and flooring loans in order to gain their trust in business;  Ross and the Bank induced them to switch their flooring financing to it so that it could receive the majority of the dealers' conditional sales contracts;  Ross and the Bank orally granted them monthly reserve releases to be used for working capital which modified the 3 percent reserve requirement in the dealer agreement to well below that percentage and even down to zero in some cases;  these dealers were allowed privileges such as instant credit on drafts and instant approval of conditional sales contracts so as to maintain adequate working capital;  all of these privileges conferred upon them by the Bank were terminated without notice by Ross and the Bank when economic conditions at the dealership became difficult, as the personal trust relationship between them and their local bank officers was superseded by Ross and a systematic tightening of credit through the withdrawal of the cited privileges;  the Bank manipulated their financially troubled dealerships into becoming vulnerable to closure by granting extensions of credit in the form of overdrafts in their commercial checking accounts (“floating checks”) without disclosing it would arbitrarily close them down as a result of the overdrafts;  Ross and the Bank caused their dealerships to be in a sold-out-of-trust condition by arbitrarily terminating the 10 to 15 day turnaround time for payment of conditional sales contracts and demanding immediate payment;  Ross and the Bank exploited their financially troubled dealerships by demanding UCC 1–1 filings on all dealership assets as well as personal guarantees as conditions of continued financing;  Ross and the Bank put a “cash hold” on flooring with the automobile manufacturer then transferred the flooring to another financial store when the dealer was in a difficult financial situation;  Ross and the Bank would mandate the terms of the sale or liquidation of their financially troubled dealerships under threat of closure by the Bank and Ross;  the Bank sent Ross into the dealers' financially troubled dealerships and Ross “became abrasive, obnoxious and violent in his dealings with the dealers to the point where it was impossible to reason or deal” with him;  the Bank sold their confiscated inventory at far less than invoice and sued for the deficiency plus interest;  Ross closed their dealerships without notice by using a team of Bank agents and armed guards who removed the keys from all vehicles, locked the service department and pulled chains across all the driveways making it impossible to do business;  and the Bank and Ross manipulated the liquidation of their dealership so that the Bank would receive all their remaining assets at the expense of other creditors, including employees.

First, with regard to the Bank, the foregoing evidence of custom was admissible to show the Bank acted in conformity with its custom or established practices and procedures on a given occasion, thus corroborating Williams's version of how the Bank dealt with him.  (Evid.Code, § 1105;  see People v. Memro (1985) 38 Cal.3d 658, 681, 214 Cal.Rptr. 832, 700 P.2d 446;  Marshall v. Brown (1983) 141 Cal.App.3d 408, 416, 190 Cal.Rptr. 392;  1 Witkin, Cal. Evidence (3d ed. 1986) § 349, pp. 319–320;  2 Jefferson, Cal. Evidence Benchbook (2d ed. 1982) § 33.8, pp. 1267–1270.) 41  “ ‘Habit’ or ‘custom’ is often established by evidence of repeated instances of similar conduct.”  (People v. Memro, supra, 38 Cal.3d at p. 681, 214 Cal.Rptr. 832, 700 P.2d 446, fn. omitted;  1 Witkin, Cal.Evidence (3d ed. 1986) § 354, p. 324;  see, e.g., Dincau v. Tamayose (1982) 131 Cal.App.3d 780, 793–796, 182 Cal.Rptr. 855;  Whittemore v. Lockheed Aircraft Corp. (1944) 65 Cal.App.2d 737, 751, 151 P.2d 670 [for specific instances of behavior].)   Consequently, the evidence was relevant to prove the Bank's customary tactics and established procedure detailed above of developing trust relationships between its local personnel and those high-volume automobile dealers whose large turnover of conditional sales contracts offered the greatest project opportunity to the Bank;  securing a lockhold on the financing of the dealerships by providing reserve releases, instant credit on drafts and instant approval of conditional sales contracts;  terminating these privileges without notice and systematically tightening credit;  manipulating financially troubled dealerships into becoming vulnerable to closure by permitting overdrafts in their commercial checking account without disclosing the Bank would arbitrarily close them down as a result of the overdrafts;  placing dealerships in a sold-out-of-trust position by arbitrarily terminating the 10 to 15 day turnaround time for payment of conditional sales contracts;  and orchestrating the closure of such dealerships in such a manner as to protect its interests at the expense of other creditors.   The Bank argues these are superficial similarities at best, but fails to show any substantial dissimilarity in its relationship with the dealerships.   This failure is understandable in light of the established facts, which clearly show the contrary.   Moreover, as Williams correctly argues, this evidence is further proof of the Bank's custom of using Ross as a bullying, no-holds-barred crisis manager to deal with financially troubled automobile dealerships and thus the Bank dealt with Williams in conformity with its established customary procedures.

Secondly, with regard to Ross, the challenged evidence reflected Ross's habitual behavior of aggressively handling financially struggling dealerships as the Bank's crisis manager, overseeing each and every detail of such dealership disposition.   Thus, it was admissible to establish his dealings with Williams conformed to his common practice and habit.   This evidence of his custom and habit served to negate any inference his testimony created to the contrary.  (See, e.g., Tillery v. Richland (1984) 158 Cal.App.3d 957, 968–969, 205 Cal.Rptr. 191.)   The fact this evidence of custom also tended to place him in an unfavorable light was simply incidental, not transmuting it to personal character evidence.  (See Marshall v. Brown, supra, 141 Cal.App.3d at p. 416, 190 Cal.Rptr. 392.)


After the trial court granted Williams's motions to file his fourth amended cross-complaint and to introduce “similar acts” evidence, the Bank moved for a mistrial and reconsideration, requesting a stay to seek appellate review by writ and by declaration a continuance of trial for “at least one year” to permit it to undertake the necessary discovery to meet the “similar acts” evidence.   The Bank asserts that without a continuance, it could not effectively locate documents, interview witnesses and depose other dealers because of the ongoing trial.   It contends the denial of its request to continue for discovery, following the allowance of the amendment and the “similar acts” evidence, changed the proceedings to a “trial by ambush.”

 The grant or denial of a motion for continuance is a matter within the sound discretion of the trial court whose decision will not be disturbed on appeal absent a clear showing of an abuse of discretion.   Within this state, there is no policy of indulgence or liberality favoring parties seeking continuances.   Rather, the granting of continuances is not favored, as the applicant must make a proper showing of good cause.  (Lewis v. Neptune Society Corp. (1987) 195 Cal.App.3d 427, 429, 240 Cal.Rptr. 656;  Foster v. Civil Service Com. (1983) 142 Cal.App.3d 444, 448, 190 Cal.Rptr. 893;  County of San Bernardino v. Doria Mining & Engineering Corp. (1977) 72 Cal.App.3d 776, 781, 140 Cal.Rptr. 383.)   In determining good cause, the trial court must exercise its discretion with due consideration for all interests involved;  for, the denial of a continuance which has the practical effect of denying the applicant a fair hearing constitutes reversible error.  (In re Marriage of Hoffmeister (1984) 161 Cal.App.3d 1163, 1169, 208 Cal.Rptr. 345;  7 Witkin, Cal. Procedure (3d ed. 1985) Trial, § 10, p. 26.)   Being disfavored, continuances before or during trial in civil cases “shall not be granted except on an affirmative showing of good cause under the standards recommended in section 9 of the Standards of Judicial Administration.”  (Cal. Rules of Court,42 rule 375.)   Section 9(5) of the cited Standards sets forth as good cause for granting the continuance of a trial date “[a] significant change in the status of the case where, because of a change in the parties or pleadings ordered by the court, the case is not ready for trial.”   Moreover, “[g]ood cause for continuance may be established where a party has been surprised by unexpected testimony and requires a postponement to enable him to meet it.  [Citations.]  Allowance of an amendment to a pleading may make a continuance necessary.  [Citations.]”  (In re Marriage of Hoffmeister, supra, 161 Cal.App.3d at p. 1169, 208 Cal.Rptr. 345;  7 Witkin, Cal.Procedure (3d ed. 1985) Trial, §§ 22–23, p. 38.)

 The Bank has failed to meet its burden of establishing the trial court abused its discretion in denying its request for a continuance for discovery and for a mistrial.   On appeal, the Bank neither cites any specific instance where its cross-examination of these challenged witnesses was curtailed by the necessity for further discovery, nor points to any specific prejudice from the lack of such discovery.   Rather, the Bank couches its argument in conclusory generalities, asserting it suffered a manifest miscarriage of justice.   The Bank simply claims it was denied a fair opportunity to counter the numerous “similar acts” evidence and the previously undisclosed testimony of numerous disgruntled dealers.   However, absent a persuasive factual showing, any error on the part of the trial court is simply procedural, not justifying a reversal.  (In re Marriage of Johnson (1982) 134 Cal.App.3d 148, 155, 184 Cal.Rptr. 444.)

Here, as already explained, the amendment to the pleading simply incorporated an additional legal theory based upon the same contracts the Bank relied upon in their case-in-chief and the same conduct by the Bank Williams had relied upon in his original causes of action for fraud and his breach of covenant of good faith affirmative defense to the Bank's action on the personal guarantees.   Within the context of section 9 of the Standards of Judicial Administration, there was no “significant change in the status of the case.”   Secondly, the trial court could properly consider the fact that the Bank's counsel objected to inquiries regarding similar acts during Ross's deposition.   Contrary to the Bank's assertion, the trial court's consideration of this fact did not amount to a sanction improperly imposed in light of Code of Civil Procedure section 2034.   Although its probative value may not be high under the circumstances of this case, the relevance of this consideration goes to estoppel.

Further, the Bank has not shown that evidence regarding the “similar acts” was not available to it during the following two months during which the witnesses testified, especially where the Bank had custody of the majority, if not all, of the financial documents relating to the other dealerships.43  To the contrary, our independent review of the entire record shows the Bank was not prejudiced in this regard by the trial court's denial of its request for a continuance for discovery.   Indeed, the scope of its cross-examination of these “disgruntled dealers,” the volume of its proffered and admitted relevant documentary evidence and its well-orchestrated parade of rebuttal witnesses reflect not only substantial preparation and thoroughness, but also readiness on the Bank's part.

The Bank has not shown how the trial court failed in its promise to afford it reasonable opportunity for discovery.   Rather, its allegation the trial court distorted the entire purpose and process of the discovery statutes when it declared within its statement of decision it had permitted broad inquiry at trial of the dealership witnesses in lieu of a continuance and an opportunity for the Bank to conduct discovery, is unsupported by factual reference.   Further, the trial court permitted broad inquiry into every facet of the Bank–Williams relationship.   In summary, the Bank has not shown how it was prejudiced by the trial court's failure to grant a continuance for further discovery.   Rather, the record supports the contrary inference and reflects a conscientious trial judge honoring his assurance of “fair play” while balancing the laudable goals of the Discovery Act (see Davies v. Superior Court (1984) 36 Cal.3d 291, 299, 204 Cal.Rptr. 154, 682 P.2d 349;  Greyhound Corp. v. Superior Court (1961) 56 Cal.2d 355, 376, 15 Cal.Rptr. 90, 364 P.2d 266) and the unfortunate reality of our heavily burdened trial court system (see e.g., County of San Bernardino v. Doria Mining & Engineering Corp., supra, 72 Cal.App.3d at pp. 780–781, 140 Cal.Rptr. 383).44


Relying on Code of Civil Procedure section 657, subdivision 4, providing a new trial may be granted where there is newly discovered evidence material for the applicant which could not have been discovered and produced at trial with reasonable diligence, the Bank asserts the trial court erred in denying its motion for a new trial because Williams suppressed documents demanded during pretrial discovery.   However, in its reply brief, the Bank couches its assertion in different terms, contending the trial court abused its discretion by denying it the opportunity to conduct post-trial discovery to obtain support for its motion for new trial.   As we shall explain, regardless how the Bank phrases its contention, the trial court was without jurisdiction to grant it relief.

 “Timely filing is essential to the jurisdiction of the court to entertain a motion for new trial.  [Citations.]  The trial court does not have the jurisdiction to make an order granting a new trial on its own motion.”   (Ehrler v. Ehrler (1981) 126 Cal.App.3d 147, 151, 178 Cal.Rptr. 642;  Tabor v. Superior Court (1946) 28 Cal.2d 505, 507–508, 170 P.2d 667;  Ruiz v. Ruiz (1980) 104 Cal.App.3d 374, 379, 163 Cal.Rptr. 708.)   Rather, “[t]his right to move for a new trial is a creature of statute and the procedure prescribed by law must be closely followed.”  (Wagner v. Singleton (1982) 133 Cal.App.3d 69, 72, 183 Cal.Rptr. 631.)   Consequently, “[t]he power to grant a new trial may be exercised only through statutorily authorized procedure.”  (Ehrler v. Ehrler, supra, 126 Cal.App.3d at p. 151, 178 Cal.Rptr. 642;  Smith v. Superior Court (1976) 64 Cal.App.3d 434, 436, 134 Cal.Rptr. 531.)  “Accordingly, the motion for new trial can only be granted on a ground specified in the notice of intention to move for a new trial.”   (Wagner v. Singleton, supra, 133 Cal.App.3d at p. 72, 183 Cal.Rptr. 631;  Malkasian v. Irwin (1964) 61 Cal.2d 738, 745, 40 Cal.Rptr. 78, 394 P.2d 822.)   The fact the trial court heard the matter and denied the motion does not confer upon the court jurisdiction over the matter, as the parties similarly cannot vest the court with jurisdiction through their participation in the hearing.  (Ehrler v. Ehrler, supra, 126 Cal.App.3d at pp. 147, 153, 178 Cal.Rptr. 642.)

 Here, on January 7, 1986, the trial court issued its statement of intended decision.   Ten days later, the Bank filed its objections to the statement of intended decision and a notice of intention to move for a new trial and/or vacate judgment.   That notice failed to include argument based upon Code of Civil Procedure section 657, subdivision 4.   However, the “judgment on decision by court” was not filed and entered until February 7.   On February 21, the Bank filed its second notice of intention to move for a new trial.   Because the first notice was premature and filed before the entry of the judgment, it was void and of no effect.  (Ehrler v. Ehrler, supra, 126 Cal.App.3d at p. 152, 178 Cal.Rptr. 642.)   The February 21 notice was timely filed in accordance with Code of Civil Procedure section 659, within 15 days of February 7, when the clerk mailed notice of entry of judgment.   However, proffering the identical grounds raised in the first notice, the second notice also failed to include Code of Civil Procedure section 657, subdivision 4 as a basis for relief.

 Williams correctly asserts the Bank has failed to demonstrate the trial court had jurisdiction to grant its motion for new trial in the first place.   Relying on Girch v. Cal–Union Stores, Inc. (1968) 268 Cal.App.2d 541, 74 Cal.Rptr. 125, the Bank argues the court had jurisdiction to grant a new trial upon receipt of reasonable notice of the grounds for a motion for new trial.   Consequently, the Bank contends it timely filed its supplemental points and authorities in support of its motion for new trial which specifically raised and argued the issue of concealment of documents as a ground for its motion for new trial.   However, that document was filed on March 19 and not within 15 days of when the clerk mailed notice of entry of judgment on February 7.   Thus, the Bank's reliance on Girch is misplaced, as there plaintiff submitted with her notice a memorandum in support of the motion for new trial which the court construed as one document and evidenced plaintiff's intention to move for a new trial on a ground not listed within her notice.  (Girch v. Cal–Union Stores, Inc., supra, 268 Cal.App.2d at p. 548, 74 Cal.Rptr. 125.)   It is firmly established that because we are compelled to strictly construe and apply the time limitations within Code of Civil Procedure section 659, any amendments to the notice of intention to move for a new trial must be filed within the applicable statutory time limit.  (Wagner v. Singleton, supra, 133 Cal.App.3d at pp. 72–73, 183 Cal.Rptr. 631;  Galindo v. Partenreederei M.S. Parma (1974) 43 Cal.App.3d 294, 301, 117 Cal.Rptr. 638;  McFarland v. Kelly (1963) 220 Cal.App.2d 585, 587, 33 Cal.Rptr. 754, where the court declared:  “A defective notice of intention to move for a new trial cannot be amended after expiration of the statutory time for filing the notice, since that would in effect extend the time allowed by law for giving such notice, and the court has no power to grant an extension.”)   Therefore, the trial court had no power to act on the Bank's new trial motion on the concealment ground.

At first glance, we were concerned with the fraudulent implications of a concealment allegation divesting the trial court of jurisdiction to entertain the Bank's request at the motion for new trial hearing.   However, it appears from the record that the declaration of R. Anthony Bauman, one of Williams's attorneys, in support of Williams's application for attorney's fees, was filed on February 18, three days before the Bank filed its second notice of intent to move for a new trial.45  The essence of the Bank's concealment argument is that Bauman within his declaration stated he had reviewed eight to ten file boxes of documents in October 1984;  however, documents produced by Williams on January 17, 1984, constituted merely an inch in depth of paper.   The Bank clearly had the time to amend its notice to include the concealment ground.46

With regard to the Bank's complaint regarding the trial court's denial of its post-trial discovery motions, it is not cognizable on this appeal.   After receiving Bauman's declaration on February 18, 1986, the Bank served subpoenas duces tecum on Williams's counsel, who were deposed on March 17 (Patrick Frega) and March 18 (Bauman).   During both depositions, numerous questions were objected to on grounds of relevancy and the attorney work product doctrine relating to the motion for new trial.   On March 19, the Bank moved to compel their testimony and the production of documents.   On the next day, the trial court denied the Bank's request for a continuance and motion for new trial, as well as referred the discovery motions to Honorable Louis A. Tepper, sitting as a referee.   On March 28, the Bank filed its amended notice of appeal, at which time its post-trial discovery motions had not yet been decided.   On June 5, the referee issued a report recommending all further proceedings regarding the pending depositions be suspended without prejudice to application before this court.   A week later, the trial court approved the referee's report and on June 16 denied the Bank's motion for reconsideration, ordering it to pay the costs of the referee.   On June 23, the Bank petitioned this court for a peremptory writ of mandate (D004741), seeking a writ to compel the trial court to order the discovery requested by the Bank and reverse its order requiring it to pay the referee's fees.   On July 8, this court denied the Bank's petition for incompleteness and the absence of any showing of abuse of discretion.   Consequently, because the Bank's discovery motions were “adjudicated” after the rendition of the judgment and the new trial order from which the Bank appealed, they are outside this appeal.  (Williams v. Thomas (1980) 108 Cal.App.3d 81, 85, 166 Cal.Rptr. 141;  People's Home Sav. Bank v. Sadler (1905) 1 Cal.App. 189, 193–194, 81 P. 1029;  9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 252, pp. 258–259.)   Even assuming but not granting these discovery orders were appealable as orders made after an appealable judgment (Code Civ.Proc., § 904.1, subd. (b)), the Bank has failed to appeal from them and the time for doing so has lapsed (rule 2(a)).


 The Bank unmeritoriously contends the trial court erred in awarding Williams compensatory damages without requiring him to perform his obligations under his guarantees.   Noting the court found the Bank lost $883,782.25 as a result of the closures of Viking Dodge and Baron Buick and Williams's default on his guarantees and $35,000 note, the Bank argues it is entitled to have this amount deducted from Williams's compensatory damages award which it alleges was generated by the trial court partially rescinding his personal guarantees.   This claim rests on a mischaracterization of the nature of the litigation by declaring Williams affirmed his obligations under the guarantees by suing to recover for damages thereunder.   From this faulty premise, the Bank reasons the trial court only partially rescinded the guarantees and the note, contrary to the provisions of section 1691, by awarding Williams damages while not requiring him to perform his obligations under the guarantees.   However, Williams did not sue to recover damages under the guarantees, the Bank did.   Williams affirmatively defended on the grounds that the Bank's conduct made his performance under the agreements impossible, fraudulently induced him into signing them and frustrated their underlying purposes.   The trial court expressly found Williams proved his fraud defense and concluded the Bank's fraud rendered it impossible for him to perform his obligations under the contracts, precluding the Bank's recovery for Williams's contractual obligations on its complaint.   Williams's cross-complaint recovery was for compensatory damages suffered as a result of the Bank's fraud and negligent misrepresentations in inducing him to purchase Viking Dodge.   Consequently, these tort causes of action did not rest upon the guarantees.

 Granted, $1,669,554 for lost earnings was included within the compensatory damages award.   However, these damages did not flow from breach of contract, but rather from the Bank's unrelated fraudulent conduct and were properly awarded under sections 1709 and 3333.   Inferentially, the Bank is arguing Williams would not have been able to earn the lost income awarded but for these guarantees, and thus, receiving the challenged damages constitutes his affirmance of the guarantees and promissory note.   However, at most, these guarantees amounted to no more than a “foundational backdrop giving rise to the action.”  (Sprague v. Frank J. Sanders Lincoln Mercury, Inc. (1981) 120 Cal.App.3d 412, 419, 174 Cal.Rptr. 608.)   Absent the Bank's fraudulent conduct, the necessary condition precedent to Williams's personal liability under the guarantees would not have occurred.   A creditor who is a party to fraud cannot recover either directly or indirectly from a victimized surety.  (See generally, 10 Williston on Contracts (3d ed. 1967) § 1246, p. 786.)

 The compensatory damages award here is not flawed for providing an award more akin to “benefit of the bargain” damages awardable under contract rather than permissible “out of pocket” damages for fraud and deceit (see 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 1441 et seq., pp. 914–925), in light of our determination there existed a de facto fiduciary relationship between the parties.   For, where the defrauding party stands in a fiduciary relationship to the victim, damages must be measured pursuant to the broad provisions of sections 1709 and 3333, regulating compensation for torts in general, in substantially the same manner as a breach of contract so as to provide the injured party with “the benefit of his bargain” and attempt to place him insofar as possible in the same position he would have been in the absence of the fraud.  (Pepitone v. Russo (1976) 64 Cal.App.3d 685, 689, 134 Cal.Rptr. 709.)   Consequently, applying “the benefit of the bargain” rule here and presuming Williams's award for lost income represented “net” income after payment of any obligations on the $35,000 promissory note, Williams is entitled to the compensatory damages awarded for lost income as supported by substantial evidence.


 The Bank next asserts the judgment should be reversed because Williams was awarded excessive damages for lost wages based upon the erroneous assumption he would earn future wages from three dealerships when the evidence established he never simultaneously worked for more than two dealerships and never successfully managed more than one at a time.   The Bank again misrepresents the record.   Substantial evidence supports the trial court's determination.

The trial court awarded $1,669,554 for lost wages to Williams for the period from 1980 to 1985.   This award was based on the calculation of an expert witness, Arthur Brodshatzer, who projected Williams's income for five years after 1979, employing Williams's 1979 salary as the base year.   Although offering no expert of its own, the Bank challenges this calculation as erroneous as being based on the assumption Williams would continue to receive wages from Baron Buick, Viking Dodge and Lamb Chevrolet through 1985, and because it claims the evidence is “uncontroverted” Williams was unable to effectively manage more than one dealership at a time.   Consequently, the Bank asserts Williams's lost wages should be based only upon the year Williams received his highest earnings from Baron Buick alone, which would permit recovery of only $236,740.

Granted, Williams's expert testified his loss of wages for the period of 1980–1985 was $1,669,554.47  Granted, his base year calculation was based upon income Williams had received from sources other than Baron Buick, including Viking Dodge and Lamb Chevrolet.   However, such reliance was reasonable because Williams had clearly derived income from other dealerships before 1980 and consequently his earning history at those dealerships was a relevant factor in computing his earnings potential and lost wages.   In light of his established propensity to do so, and evidence of continuing opportunity, it is reasonable to project Williams would have sought income from either owning or managing other dealerships had the Bank not fraudulently induced him into purchasing Viking Dodge resulting in the bankruptcy of both it and Baron Buick.48  Secondly, Brodshatzer's opinion was conservatively predicated upon the assumptions Baron Buick would not have outperformed other dealerships, an assumption which disregarded the fact that Buick was the only domestic automobile to show a sales increase during 1979–1981.   Further, the expert assumed Williams's compensation would only modestly rise consistent with projections for the average white collar person, rather than actual dramatic increases Williams had had in the past.   Because the relevant and considered opinion of one expert may constitute substantial evidence in support of the trial court's factual determination (see, e.g., Braewood Convalescent Hospital v. Workers' Comp. Appeals Bd. (1983) 34 Cal.3d 159, 169, 193 Cal.Rptr. 157, 666 P.2d 14;  Leppo v. City of Petaluma (1971) 20 Cal.App.3d 711, 719, 97 Cal.Rptr. 840), we conclude the Bank has failed to establish the expert's opinion on lost wages was defective because of erroneous reasoning or reliance upon fact either unproven or assumed contrary to the evidence.  (White v. State of California (1971) 21 Cal.App.3d 738, 759–760, 99 Cal.Rptr. 58.)


In his cross-appeal, Williams contends the trial court abused its discretion in awarding him only $200,000 in attorney's fees.   He claims it should have computed its award by the terms of the existing reasonable contingent fee contract to effectuate the purposes underlying section 1717 and the presence of contractual attorney's fee clauses in promissory notes and general continuing guarantees.   Alternatively, he contends that even if the trial court was entitled to consider other criteria in determining the reasonableness of attorney's fees, $200,000 was unreasonably low.   In contrast, the Bank asserts the trial court abused its discretion in awarding attorney's fees incurred in prosecuting tort claims, because Williams failed to carry his burden of proof regarding the relationship of his fees to the defense and as a matter of law section 1717 does not authorize an award of attorney's fees related to tort causes of action.   Williams replies that fees need not be apportioned under section 1717 where they are incurred for representing issues common to both the contract and tort causes of action.

Both the personal guarantees and the promissory note upon which the Bank sued Williams contained unilateral attorney's fee provisions.   Williams prevailed on these contract causes by successfully establishing the Bank's conduct made it impossible for him to perform under the contracts and applied for “reasonable” attorney's fees pursuant to section 1717.   Williams argues his $4,793,554 gross award should not be diminished by his personal liability for attorney's fees because it is the underlying intent of section 1717 to make the prevailing litigant whole.   He submitted declarations of local experienced attorneys attesting to the reasonableness of his contingent fee arrangement 49 under which his counsel requested approximately $2,396,777.   This was equivalent to approximately one-half of the award and would provide Williams's counsel with about one-third of a gross judgment of $7,273,253.91, including costs.

The Bank countered with declarations of equally respected and experienced counsel contending Williams was not entitled to attorney's fees based on his contingent fee arrangement under section 1717;  that Williams proffered insufficient evidence to support an award based on reasonable apportionment;  and, assuming entitlement and calculatability, a reasonable award for the successful defense on the low side would be between $50,000 to $75,000 or $90,000 to $130,000 or on the high side $300,000 to, perhaps, $450,000.   The Bank admitted it incurred attorney's fees and costs totaling $710,979.74.   Without stating reasons, the trial court awarded Williams $200,000 in attorney's fees.50

 Generally, a party is precluded from recovering attorney's fees, unless such fees are specifically authorized by agreement or statute.   (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 127, 158 Cal.Rptr. 1, 599 P.2d 83;  Nasser v. Superior Court (1984) 156 Cal.App.3d 52, 56, 202 Cal.Rptr. 552;  Smith v. Krueger (1983) 150 Cal.App.3d 752, 756, 198 Cal.Rptr. 174.)   Section 1717, subdivision (a) provides in pertinent part:

“In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.”

This provision was designed to transform a unilateral contract right to attorney's fees into a reciprocal one, so as to accomplish mutuality of remedy and to prevent the oppressive use of such one-sided attorney's fees provisions.  (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at p. 128, 158 Cal.Rptr. 1, 599 P.2d 83;  Smith v. Krueger, supra, 150 Cal.App.3d at p. 756, 198 Cal.Rptr. 174.)

 “Where a cause of action based on the contract providing for attorney's fees is joined with other causes of action beyond the contract, the prevailing party may recover attorney's fees under section 1717 only as they relate to the contract action.”  (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at p. 129, 158 Cal.Rptr. 1, 599 P.2d 83;  Diamond v. John Martin Co. (9th Cir.1985) 753 F.2d 1465, 1467.)   Consequently, a party may not enhance his recovery of attorney's fees by simply joining a cause of action under which attorney's fees are not recoverable to one which permits such an award.   (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at p. 129, 158 Cal.Rptr. 1, 599 P.2d 83;  All–West Design, Inc. v. Boozer (1986) 183 Cal.App.3d 1212, 1226–1227, 228 Cal.Rptr. 736.)   On the other hand, a party's joinder of causes of action should not dilute that party's right to attorney's fees.  “Attorney's fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed.”  (Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at pp. 129–130, 158 Cal.Rptr. 1, 599 P.2d 83;  Diamond v. John Martin Co., supra, 753 F.2d at p. 1467.)  “The recognized barrier to segregation for purposes of calculating fee awards is inextricably intertwined issues.   Thus, although timekeeping and billing procedures may make a request to segregation difficult, they do not, without more, make it impossible.”  (Diamond v. John Martin Co., supra, 753 F.2d at p. 1467;  Fed–Mart Corp. v. Pell Enterprises, Inc. (1980) 111 Cal.App.3d 215, 227–228, 168 Cal.Rptr. 525;  Walters v. Marler (1978) 83 Cal.App.3d 1, 36, 147 Cal.Rptr. 655.)

 Granted, fees are not recoverable in tort actions.  (Stout v. Turney (1978) 22 Cal.3d 718, 730, 150 Cal.Rptr. 637, 586 P.2d 1228;  All–West Design, Inc. v. Boozer, supra, 183 Cal.App.3d at p. 1226, 228 Cal.Rptr. 736;  Plemon v. Nelson (1983) 148 Cal.App.3d 720, 724, 196 Cal.Rptr. 190.)   An application for attorney's fees under section 1717 will be denied where the prevailing party has either recovered on or successfully defended against an offensive legal theory of fraud in the inducement of the contract.  (See, e.g., Stout v. Turney, supra, 22 Cal.3d at p. 730, 150 Cal.Rptr. 637, 586 P.2d 1228;  Walters v. Marler, supra, 83 Cal.App.3d at pp. 27–28, 147 Cal.Rptr. 655;  Schlocker v. Schlocker (1976) 62 Cal.App.3d 921, 922–923, 133 Cal.Rptr. 485;  McKenzie v. Kaiser–Aetna (1976) 55 Cal.App.3d 84, 89–90, 127 Cal.Rptr. 275.)

“This line of case law is based on the rationale that section 1717 is only meant to establish reciprocity of provisions for attorney's fees for enforcement of the contract.  [Citation.]  An action premised on fraud in the inducement seeks to avoid the contract rather than to enforce it;  the essential claim is ‘I would not have entered into this contract had I known the truth.’   The duty not to commit such fraud is precontractual, it is not an obligation undertaken by the entry into the contractual relationship.”   (Perry v. Robertson (1988) 201 Cal.App.3d 333, 342–343, 247 Cal.Rptr. 74.)

Similarly, where a party pleads causes of action both in contract and tort and obtains a general verdict without special findings, attorney's fees are not recoverable because of the impossibility of determining what part, if any, of the jury award related to contract.  (McKenzie v. Kaiser–Aetna, supra, 55 Cal.App.3d at pp. 88–89, 127 Cal.Rptr. 275;  Morin v. ABA Recovery Service, Inc. (1987) 195 Cal.App.3d 200, 209, 240 Cal.Rptr. 509.)   Additionally, a tort claimant's successful rebuttal to a defendant's asserting a limitation to liability contained in a contract does not give rise to recoverable attorney's fees, where there was no intent to make the tort claimant liable under the contract.  (Plemon v. Nelson, supra, 148 Cal.App.3d at pp. 724–725, 196 Cal.Rptr. 190.)   However, where defense of the fraud claim is necessary so as to prevail within the “offensive” context of obtaining performance under a contract or proof of fraud is required so as to prevail within the “defensive” context of discharging an obligation of performance under a contract, attorney's fees incurred by the prevailing party are recoverable under section 1717 as they relate to the contract action.  (IMO Development Corp. v. Dow Corning Corp. (1982) 135 Cal.App.3d 451, 464, 185 Cal.Rptr. 341;  Wagner v. Benson, supra, 101 Cal.App.3d at p. 37, 161 Cal.Rptr. 516;  see Manson v. Reed (1986) 186 Cal.App.3d 1493, 1505–1506, 231 Cal.Rptr. 446.)  “We have no quarrel with the proposition that a cause of action does not warrant a recovery under section 1717 merely because a contract with an attorney's fees provision is part of the backdrop of the case.”  (Perry v. Robertson, supra, 201 Cal.App.3d at p. 343, 247 Cal.Rptr. 74.)   However, here Williams is clearly entitled to attorney's fees under section 1717 as the prevailing party in the Bank's causes of action on the guarantees and promissory note for his successful defense theoretically based on fraud.

 It is firmly established that an award of attorney's fees is a matter committed to the sound discretion of the trial court, whose decision cannot be reversed in the absence of a manifest abuse of that discretion.   (Hadley v. Krepel (1985) 167 Cal.App.3d 677, 682, 214 Cal.Rptr. 461;  Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 623, 134 Cal.Rptr. 602;  Schoolcraft v. Ross (1978) 81 Cal.App.3d 75, 82, 146 Cal.Rptr. 57.)   Because the value of legal services is a matter within the trial court's expertise, it determines the value of the services contrary to, or without the necessity for, expert testimony.  (Melnyk v. Robledo, supra, 64 Cal.App.3d at p. 623, 134 Cal.Rptr. 602;  Vella v. Hudgins (1984) 151 Cal.App.3d 515, 524, 198 Cal.Rptr. 725.)   In fact a trial court is assumed to be in the best position to evaluate the services rendered by attorneys in its courtroom.  (Glendora Community Redevelopment Agency v. Demeter (1984) 155 Cal.App.3d 465, 474, 202 Cal.Rptr. 389;  Vella v. Hudgins, supra, 151 Cal.App.3d at p. 522, 198 Cal.Rptr. 725.)   In reviewing an alleged abuse of discretion, we must determine whether the trial court's award exceeded the bounds of reason, considering all the surrounding circumstances.  (Smith v. Krueger, supra, 150 Cal.App.3d at p. 757, 198 Cal.Rptr. 174;  Hadley v. Krepel, supra, 167 Cal.App.3d at p. 682, 214 Cal.Rptr. 461.)

 In determining value, the trial court should consider the following criteria:  (1) the nature, novelty and difficulty of the litigation;  (2) the impact of the case on counsel in the light of precluding other employment;  (3) the amount involved and the results obtained;  (4) the time limitations imposed by the surrounding circumstances;  (5) the skill required and the skill employed in handling the litigation;  (6) the attention given by counsel to the matter;  (7) the ultimate success of the attorney's efforts;  (8) the experience, reputation, and ability of the attorney or attorneys providing the service;  (9) the intricacies and importance of the litigation;  (10) the labor and necessity for skilled legal training and ability in trying the particular case;  (11) the nature and duration of the professional relationship with the client;  (12) the nature of the parties' fee arrangement—whether it is fixed or contingent;  and (13) the client's informed consent to that fee arrangement.  (Hadley v. Krepel, supra, 167 Cal.App.3d at p. 682, 214 Cal.Rptr. 461;  Glendora Community Redevelopment Agency v. Demeter, supra, 155 Cal.App.3d at p. 474, 202 Cal.Rptr. 389;  Melnyk v. Robledo, supra, 64 Cal.App.3d at pp. 623–624, 134 Cal.Rptr. 602;  Shannon v. Northern Counties Title Ins. Co. (1969) 270 Cal.App.2d 686, 689, 76 Cal.Rptr. 7;  Berry v. Chaplin (1946) 74 Cal.App.2d 669, 678–679, 169 P.2d 453;  Cal.Rules of Professional Conduct, rule 2–107.)   The record here shows the court did receive substantial evidence on each of these points.

Williams contends the purpose of an attorney's fees provision within a promissory note is to guarantee a prevailing plaintiff will recover the full amount due without any offset for attorney's fees.  (Wiener v. Van Winkle (1969) 273 Cal.App.2d 774, 788, 78 Cal.Rptr. 761.)   He then argues that purpose combined with the reciprocity applicability of section 1717 requires a trial court to award a prevailing borrower the actual attorney's fees incurred in defense, regardless whether the obligation to pay arose from a contingent fee arrangement provided such arrangement was reasonable when created.   However, the general rule, which has emerged from various legal contexts, is that the existence of a contingent fee contract is not determinative, but one factor to be considered by the court in deciding what constitutes reasonable attorney's fees.  (State of California v. Meyer (1985) 174 Cal.App.3d 1061, 1073–1074, 220 Cal.Rptr. 884;  Salton Bay Marina, Inc. v. Imperial Irrigation Dist. (1985) 172 Cal.App.3d 914, 953–954, 218 Cal.Rptr. 839.)

Confronted by a similar factual scenario involving attorney's fees, the Supreme Court of Montana reasoned in pertinent part:

“There are two purposes in a statutory or contractual provision providing for attorney fees to a successful party.   One is the hoped-for elimination of frivolous claims or defenses to claims;  and the other is the intent of statute or the contract to make the party having to resort to court action whole if he or she is successful.   It is incumbent upon us therefore to point out the reasons why, when parties such as the Weinbergs here are faced with attorney fees amounting to $91,531.53, their recovery of attorney fees in the amount of $12,500.00 should be approved.

“The result comes from the principles of contract, and the purposes of statutes or contractual provisions which provide for attorney fees.   This court has in the past and does now continue to support the advocacy and necessity of reasonable retainer contracts based on a contingent fee where reasonably arrived at between parties competent to contract.   To hold otherwise might prevent needy but worthy litigants from reaching the courthouse door.

“On the other hand statutory or contractual provisions for attorney fees to the successful party are not based upon contingency of collection, but rather upon the expectation that the losing party will in fact pay the attorney fees awarded.   In a contingent fee arrangement, there is a factor of risk undertaken by the attorney that he may receive nothing for his labor.   It is that factor of risk which prompts courts to approve contingent fees which might otherwise seem unnecessarily large.   The risk of no return is a component or factor tending to support a larger fee.   Such a risk is not contemplated in those cases involving statutory or contractual provisions for attorney fees.   The contemplation then is that regardless of the result, the attorney will be paid for his labor.   Because of that distinction, ․ a contingent fee contract does not bind a ․ court in determining a proper amount of attorney fees to be awarded under a statute or contract provision.”  (Weinberg v. Farmers State Bank of Worden (Mont.1988) 752 P.2d 719, 735.)

We agree with the above reasoning.   Section 1717 was designed to provide mutuality of remedy within the context of reasonable attorney's fees incurred in matters of contract, not tort.   Applying this reciprocity intent while attempting to effectuate the underlying purpose of making the prevailing party whole in actions based upon lending instruments within the context of contract damages is one thing, but it is quite another to apply that rationale to tort and a contingent fee contract so as not to diminish Williams's gross award.   Because the purpose of section 1717 and the object of an attorney's fee provision within a lending instrument arise within the context of contract, to attempt to apply their underlying rationale to the tort arena is inconsistent with established principles precluding recovery of attorney's fees in tort actions and would magnify the deterrent effect of reciprocity beyond the realm of reason and remove any resemblance an award would have to the amount necessary to make a prevailing party “whole” within the context of contract damages.   Moreover, contrary to Williams's assertion, a court does not under these circumstances penalize a party, who is required to retain defense counsel on a contingent fee basis because of inability to afford counsel on a fixed or hourly rate, by not awarding the actual fees due under the fee agreement;  for, as prevailing party, it will be reimbursed all fees incurred defending the contract action.   As already noted, the remaining fees, attributable to the prosecution of the tort action, would not have been recoverable had the borrower “offensively” hired counsel on a contingent fee basis solely for prosecuting the tort claim.   However, this is not to say, that where contract and tort causes are so intertwined so as to render apportionment impossible, a contingent fee arrangement, which is reasonable in character, may well reflect a reasonable fee award after consideration of all the cited factors above.   (See State of California v. Meyer, supra, 174 Cal.App.3d at p. 1074, 220 Cal.Rptr. 884.)   Consequently, although the record amply reflects the reasonableness of Williams's contingent fee arrangement, it is but one variable to be considered in the court's determination of a reasonable fee award.

The thrust of Williams's argument below and on appeal was that his defense of the Bank's contract claims was coextensive with the prosecution of his tort claims because he needed to establish the Bank's fraud in order to prevail on both the contract and tort claims.   He asserts that both factually and procedurally the fraud issues were common to all the causes of action and so inextricably intertwined so as to render apportionment impossible.   Consequently, the declarations proffered by Williams regarding attorney's fees are primarily focused toward substantiating the reasonableness of the contingent fee arrangement, rather than the calculation of apportionable attorney's fees related solely to the defense of the contract actions.   Responding to this lead, the Bank contends Williams has failed to carry his burden of proof as to the relationship of his fees to the contract claims and thus “[t]he record is bare of any evidence to support the fee award of $200,000.”   However, contrary to the Bank's representation, the declarations of its own witnesses, two well respected and experienced counsel support the award.   One declared a reasonable fee as to the contract claims would be in the range of $50,000 to $75,000, or perhaps even $90,000 to $130,000 (Charles W. Rees, Jr.), while the other opined from $300,000 to $450,000 on the high side (Charles W. Froehlich, Jr.).   Moreover, the Froehlich declaration set forth a scholarly analysis for apportionment, considering the estimated average earnings of counsel of Bauman's and Frega's respective experience and the time they could have reasonably allocated to the case of 16 and 9 months respectively.   Williams counters by arguing the fee award is unconscionably low and provides us with a detailed analysis considering all the criteria summarized above.

 This matter has thus evolved into a determination of whether substantial evidence supports the trial court's award and thus whether the trial court abused its discretion.   Mindful the fee award rests within the sound discretion of the trial court whose decision will not be reversed absent a manifest abuse of that discretion (Hadley v. Krepel, supra, 167 Cal.App.3d at p. 682, 214 Cal.Rptr. 461), the trial court did not abuse its discretion in awarding Williams $200,000 in attorney's fees.   In reaching that award, the trial court was not bound by the declarations of counsel or any experts, but could rely on its own expertise, experience and knowledge, intimate relationship with the litigation and observance of the quality of services rendered by counsel in its courtroom.  (See Montgomery v. Bio–Med Specialties, Inc. (1986) 183 Cal.App.3d 1292, 1298, 228 Cal.Rptr. 709;  Glendora Community Redevelopment Agency v. Demeter, supra, 155 Cal.App.3d at p. 474, 202 Cal.Rptr. 389;  Fed–Mart Corp. v. Pell Enterprises, Inc., supra, 111 Cal.App.3d at p. 227, 168 Cal.Rptr. 525.)   Inferentially, the trial court concluded the award was apportionable and based upon its experience reached a valuation which fell between the high and low ranges presented by the Bank's experts.   We cannot conclude as a matter of law on this record the trial court erred in apportioning the judgment for the purposes of awarding attorney's fees.   Further, as to the fee award, the figure of $200,000 is neither so small nor so large as to suggest it reflects passion or prejudice.  (See Hadley v. Krepel, supra, 167 Cal.App.3d at p. 686, 214 Cal.Rptr. 461.)

Our task is not to substitute our opinion for that of the trial court, but rather to determine whether the trial court's award exceeded the bounds of reason in light of the surrounding circumstances.  (Smith v. Krueger, supra, 150 Cal.App.3d at p. 757, 198 Cal.Rptr. 174.)   Here, it did not.


Judgment affirmed.

I respectfully dissent.   In my view the statement of decision by the trial court erroneously failed to address and resolve the issue of justifiable reliance as specifically requested by Bank.   Under the authority of Code of Civil Procedure sections 632 and 634,1 and Miramar Hotel Corp. v. Frank B. Hall & Co. (1985) 163 Cal.App.3d 1126, 210 Cal.Rptr. 114, this failure constitutes reversible error per se.

Justifiable reliance must be established as an essential element in Williams's case.   The standard to be applied is well stated in Kahn v. Lischner (1954) 128 Cal.App.2d 480, 489, 275 P.2d 539:

“Thus if the conduct of the complaining party in the light of his own intelligence and information, or ready availability of information, was manifestly unreasonable, he will be denied a recovery.   The test is not only whether the party acted in reliance upon a misrepresentation, but whether he was justified in his reliance.”

The trial court, in its statement of decision, concluded “Williams justifiably relied on the statements, actions and non-actions of the bank officers, employees and agents․”  This ultimate fact or conclusion of law is contained in that portion of the statement of decision entitled “FRAUD” and included under the general heading “LEGAL ISSUES.”   Earlier, in detailing “Some of the court's salient factual conclusions,” the trial court found:  “(7) Williams was justified in relying on Ross and the Security Pacific National Bank because the bank had always stood by him․  Williams did not know (and this lack of knowledge was reasonable) that Viking Dodge had no real chance at succeeding and relied on Ross' representations to the contrary.”

The statement of decision containing these quoted portions was adopted and filed by the trial court after specific objections were filed by the Bank.   I quote the pertinent objection on the issue of justifiable reliance from Bank's objections to statement of intended decision, filed January 17, 1986:

“3. In regard to the Viking Dodge fraud causes of action, the court failed to make specific findings in its Decision on the elements of:


“c. Williams' reasonable reliance on the alleged misrepresentations in light of his knowledge of Bugelli's losses at Viking Dodge (part II, I infra ), the extensive publicity regarding Chrysler's problems (part II, K infra ), his management of the dealership for one month before the escrow closed, his knowledge of the consequences of the Bank's decision not to finance van conversions (part II, R infra ), and the evidence presented by Williams that Security Pacific officers Howard Butler and Charlie Walker warned him not to purchase Viking Dodge before the close of escrow.  (Chesrown testimony;  Walker testimony.)”

The trial court, in its statement of decision, made clear factual findings concerning the special relationship between Williams and Ross.   However, significant findings were also made determining the close personal and fiduciary relationships between Williams and Bank officer Howard Butler.   In the statement of decision, the trial court described Williams's relationship with Butler as follows:  “After Walker was transferred to northern California, Williams began almost daily contact with Howard Butler, who ran Security Pacific National Bank's service center in El Cajon and who succeeded Walker with respect to the Baron Buick account, both on a business and a social basis.”   The majority opinion correctly points out, “In financial matters, Williams completely relied on the superior knowledge of Walker, Butler and Ross.”  (P. 280, fn. omitted.)   Further, “Williams also developed and maintained a close personal relationship with Howard Butler, who ran the Bank's El Cajon service center and took over the Baron Buick account.   Their relationship was both business and social.   They met frequently, permitting Butler to tutor Williams on the Bank's financial expectations for Baron Buick.   Socially, they went fishing and bought a boat together.   They became not only ‘very close friends,’ but also ‘business partners, so to speak.’ ”  (Maj. opn., ante, pp. 265–266.)   While Williams knew Ross and appreciated Ross's expertise in dealership finance, the statement of decision made it clear—as does the majority opinion—that Williams was working on a daily basis with Butler, and that his personal relationship with Butler was much closer than it was with Ross.   Butler handled Williams's financial transactions with the Bank every day.   Ross was only involved when problems reached the crisis level.   Regardless of Williams's view of Ross's expertise, the record clearly reflected, and the trial court properly found, that Butler was Williams's confidante, mentor, and most trusted Bank representative long before Viking Dodge was in the picture.

The importance of the Butler–Williams relationship is that at a time when Williams was in the process of investigating Viking Dodge and negotiating to purchase it, but before Williams was bound to go through with that transaction, Williams admitted Butler told him, “Congratulations, you just bailed out the bank and went broke at Baron.”   This statement was made by Butler in a breakfast meeting with Williams shortly after his “first series of meetings with Mr. Ross and Mr. Bugelli” concerning the Viking Dodge deal.   At that time Butler was Williams's “best friend.”

This direct warning from Williams's closest Bank associate was made before any of the final negotiations with Ross and Bugelli.   More importantly, this warning was made before Williams undertook management of Viking.   Williams was in sole control of the Viking Dodge dealership for an entire month before he was bound by the close of the sale escrow.   Williams testified Ross insisted he, Williams, take over management of Viking Dodge during the sale escrow period so he could “take a look at how the store had been run for that four or five month period [of Butler's stewardship]․”  Thereafter, Williams was personally present as manager of Viking Dodge at least four to five days per week during at least the first two weeks of April 1979.   It was during this one-month period that Williams had access to the financial statements of Viking Dodge on a daily basis.  (See maj. opn., ante, p. 277.)

Again, Butler made his explicit warning contemporaneously with Williams's actual knowledge Bank was not going to finance van conversion sales at Viking after Williams acquired it.   Williams himself testified he obtained Chrysler flooring for van packages because Bank was no longer in that market.   Long before escrow closed on Viking, Williams knew he would no longer have flooring support from Bank.   Ross insisted on this as a part of the deal.

Nevertheless, the trial court, in its statement of decision, made no reference whatsoever to Williams's admission of the Butler warning.   Thus, the statement of decision reads as though the warning was never made.   Yet at one point in the statement of decision, the trial court noted, “Any responsible banker should have warned Williams that the Viking Dodge purchase was not financially viable, or at least that the critical records, on which to make this judgment were missing.”

At eight different places in its statement of decision, the trial court based its finding of the “fiduciary relationship” between Williams and Bank on his interaction with Bank officials other than Ross.   Besides Howard Butler, the trial court mentioned Charles Walker and Gerald Bruno, among others, as officers of Bank who were in a fiduciary relationship with Williams.

By contrast, the trial court found Williams's first close contact with Ross was in November 1978, only four months before the Viking deal began and only six months before it was completed.   The very existence of this fiduciary relationship is based primarily on the interaction of Williams with Walker, then Butler and Bruno between 1976 and late 1978—the period Williams was successfully operating Baron Buick in San Diego.   Williams's strongest business contact with Ross during this period resulted from overdrafts at Baron Buick stemming from Williams's dividing his managerial expertise between Lamb Chevrolet and Baron Buick.   This problem was quickly resolved when Williams terminated his contract at Lamb Chevrolet and returned full time to Baron Buick.

Only after Bugelli's improper sales practices brought failure to University Ford and Westchester Ford did Williams have any further direct contact with Ross.

The point of this review of the trial court's factual findings is to illustrate the ambiguity inherent in the statement of decision.   While relying on the Butler–Williams “partnership” to establish the fiduciary relationship upon which it predicated liability for concealment of material facts, the trial court completely ignored Butler's warning to Williams in finding Williams justifiably relied on Ross's statements and misconduct.

I note the record contained contradictory evidence as to Butler's warning to Williams.   At trial, after Williams admitted receiving Butler's warning concerning the likelihood of failure at Viking, Butler denied making the statement at all.   Mr. Chesrown, another Bank official, corroborated Williams's admission the warning had been given to Williams by Butler.   In light of the other salient circumstances at the time, resolution of that contradictory evidence was of ultimate importance on the issue of justifiable reliance.   The only reason given for the trial court's conclusion that justifiable reliance had been established was “the bank had always stood by him [Williams].”   This reason was without any substantial evidentiary support in the record.   As already mentioned, Bank insisted Chrysler assume all flooring liability for Viking Dodge when Williams took over.   Bank refused to finance any more van conversions, which meant 90 percent of Viking's profit-making business had to be financed by other financial institutions.   Essentially, Bank was deserting Williams in his new enterprise at Viking.   Regardless of opinions or misrepresentations spoken by Ross as to the potential for success at Viking, Williams had actual knowledge Bank was not going to support his new venture financially.   Thus, the statement of decision did not address Bank's request for a specific explanation of the factual and legal basis for its decision on this critical issue, as is required by section 632.

I have searched the California authority and have found nothing to support the proposition implicit in the judgment of the trial court and the opinion of my colleagues:  When a trusted fiduciary bank officer [Butler] advises Williams his proposed Viking Dodge acquisition will “[bail] out the bank and [destroy] Baron,” Williams is legally justified in relying, instead, on the misrepresentations of another fiduciary bank officer who previously has been only minimally involved as his advisor.   If the concept of fiduciary obligation is to be extended to the bank-borrower relationship, and if it is to be based upon the conduct of Butler and other Bank officials in no way involved with the fraudulent conduct, how can that close relationship be ignored when determining the justifiable reliance issue?

As mentioned, although Bank objected to the trial court's failure to address these matters in its statement of decision, the trial court did not mention or discuss Butler's warning in the statement of decision filed in this case.   Nowhere in that document did the trial court directly address and reconcile (1) Butler's warning, (2) Williams's knowledge of conditions at Viking, and (3) Williams's opportunity to verify Butler's warning while managing Viking in April 1979.   Rather, the trial court apparently concluded Williams could ignore these matters and blithely rush to bankruptcy.

When a material issue is not explained by the trial court after a specific request, it may not be inferred on appeal that the trial court decided in favor of the prevailing party as to those facts or on that issue.  (§ 634.)   In Miramar Hotel, supra, the trial court issued an intended statement of decision by way of minute order.   Although receiving objections and specific requests for a formal statement of decision from the losing party at trial, the court did not respond but entered judgment with only the intended statement of decision on file.   This was held reversible error per se since the result was the issuance of no formal statement of decision.   The court held appellant did not need to show prejudice as a prerequisite to reversal.   Here, the circumstances were analogous.   Bank strongly asserted the failure of Williams to prove justifiable reliance in its defense.   The truth or falsity of alleged misrepresentations rested largely on the credibility of Williams and Ross, but the circumstances showing Williams's true knowledge of the risks of the Viking venture were established without controversy except for Butler's warning.   Hence, the trial court's total failure to address, resolve or explain its determination on that essential issue made the statement of decision fatally defective and reversible per se.   If one presumes the trial court believed Williams's admission as to Butler's warning, as one is authorized to do under section 634, then in relating Butler's warning to the facts clearly within Williams's knowledge, there was no basis for finding Williams justifiably relied on Ross's misconduct.

It is impossible for me to accept the proposition any experienced automobile agency operator with Williams's intelligence would ignore the impact of Butler's comment and sink his financial future in Viking Dodge, in light of the other circumstances well known to him.

Therefore, on the basis of sections 632 and 634, I dissent.   I would reverse and remand for a new trial on all issues.


1.   Williams's automobile dealership experience started at age 16 as a lot boy.   He quickly advanced to a lube man, parts department employee and service manager.   He obtained his salesman license at 18 and began selling cars.   He gained sales and service experience in higher volume dealerships in Riverside County, where he met Chesrown and Bugelli.   In 1973, he became used car manager at Lamb Chevrolet in National City.

2.   Within his statement of decision, the trial court characterized “Williams' basic understanding of the car business was that he had to sell cars to make money;  ․”

3.   In its statement of decision the trial court found:  “Williams understood his relationship with the bank to be a partnership relationship based on mutual trust and complete disclosure.   Charlie Walker, Howard Butler, and Gerry Bruno had a similar understanding.   Each understood Mr. Williams' lack of expertise when it came to understanding the financial affairs of a car dealership, and sought to assist him with this end of the business and they were aware that Williams relied on them for their financial expertise.”

4.   More precisely, the Bank was posed with a sold-out-of-trust situation, which arises from a breach of the flooring financial arrangement.   In other words, a bank provides new car inventory financing, known as “flooring” by advancing payment on the dealer's behalf to the manufacturer for new car inventory as it is delivered to the dealer.   Concurrently, the bank takes a security interest in the new automobiles.   Thus, when an automobile is sold, the dealer must repay the advance on that automobile to the lender.   Flooring is the riskiest type of dealership financing extended.   If the dealer fails to pay the money owed on each vehicle when sold, the lender loses its security interest in the collateral because an automobile sold to a customer in the ordinary course of business is free and clear of the flooring lien.  (Com.Code, § 9301, subd. (1).)  As a deterrent, Penal Code section 581 makes it a misdemeanor for a dealer to sell the floored vehicle and not pay the lender the money borrowed to floor the vehicle.   Consequently, the sale of cars without paying the lender its flooring is called “selling out of trust” constituting a breach of the flooring agreement.

5.   Before Williams acquired an interest in Baron Buick, the flooring financial arrangement was provided by GMAC and the conditional sales contracts were being purchased by both GMAC and the Bank.   However, after Williams and his partners acquired the dealership, the Bank assumed all financing.

6.   By virtue of their volume, the Bugelli dealerships were able to “ramrod” substandard and questionable sales contracts through the Bank.

7.   A reporter for Channel 2, posing as a new car salesman, underwent training where he recorded the instructor's comments.   The instructor explained how Universal Ford used illegal “bait and switch” techniques (advertising one car and switching a customer to another more expensive model) and explained it was how they did business, how the business had always been done and how they would always do it.   Moreover, the manager of Universal Ford was portrayed as a convicted felon who had just left Oklahoma after serving a two-year sentence for illegal car-sale practices.

8.   A day after his order, Bugelli persuaded Montieth to somewhat relent by authorizing the Bank's purchase of “A” rated conditional sales contracts from the dealerships.   Apparently, during the forwarding of this order to the Bank's service centers, authorization had been extended to “B” rated conditional sales contracts.

9.   The transfer of the flooring meant the Bank had lost confidence in the dealership.   The primary credit risk for the bank when confronted with the bankruptcy of a dealership was the new car credit line of flooring.   If a bank was required to liquidate the cars that were security for its flooring line, it almost always sustained a substantial loss.   Consequently, if a dealership the bank floored developed financial problems, it is a matter of prudent business policy to do whatever it could to transfer the flooring to some other financial institution to avoid potential loss from the liquidation of the new-car lien security.   Under such circumstances, the bank would encourage the existing dealer to transfer the flooring credit;  if not possible, bring in a new buyer for the dealership at a flooring line transferred at the time of sale;  or, when neither an assuming financial institution nor a new owner could be found, take over the dealership, liquidate the inventory and sue the owner for any deficiency on the dealer's personal guarantees on their dealership loans.

10.   On November 1, 1978, Chrysler Corporation posted the largest loss in its history.   Having loaned over $33 million to Chrysler, the Bank became concerned about its continued viability.   The Bank had a consumer loan committee which was chaired by Montieth, while Ross and David Necco were members.   Beginning in 1979, Necco reported to the committee on the outstanding wholesale lines of Chrysler dealers.   Consequently, the Bank's highest officials were monitoring the condition of Chrysler as early as January 1979, as the Bank was endeavoring to get out of Chrysler dealerships altogether.Although the Bank was aware of Chrysler's severe financial crisis, Bugelli was not aware of that financial crisis when he purchased Viking Dodge in November 1978;  Williams was not aware of Chrysler's true financial condition until the gas crisis hit California in May 1979;  and the possible demise of Chrysler did not become public knowledge until August 1979.

11.   Interestingly, the Bank's accounting expert testified that most dealers do not assume contingent liability when purchasing a dealership, while another one of the Bank's experts testified Williams was ill-advised to undertake the purchase of Viking Dodge.

12.   It is interesting to note that in April 1979, Bruno delivered the $50,000 check to Williams while meeting with Butler and Walker.   Walker later separately met with Bruno and inquired what the check was for and Bruno responded it was the reserve release.   Walker queried what the Bank was doing placing Williams in a Dodge store when the Bank was trying to get out of Chrysler.   Bruno responded by throwing up his hands and declaring simply he was told to deliver it.Ross approved the special reserve release, even though he was aware Baron Buick was undercapitalized at the time.

13.   When Williams was temporarily out of the office, Ross advised Alcorn that Baron Buick was a gold mine and that Williams was not properly managing it.

14.   During that same morning, several Bank employees conducted a flooring inspection, the results of which were not available to Ross before he shut down the dealership.   Resolving conflicting expert testimony, the trial court found Baron Buick was not “sold-out-of-trust” when the Bank closed it down.

15.   With the closure of the dealership, salespersons abandoned the premises and some absconded with their demonstrator vehicles as security for payment of their salaries.   Williams helped Bank employees locate missing new cars, with the result that only 4 vehicles out of 137 could not be located.

16.   One of the experts testified that with the influx of the promised $150,000 capital investment by Alcorn, Baron Buick would have made it.The Bank had Williams sign Exhibit 51 purportedly constituting a waiver of any defenses on April 25, 1980.   Although the Bank contended this constituted a complete defense to the lawsuit, the trial court found Williams's consent under the circumstances was coerced and involuntary, rendering the waiver ineffective.

17.   For instance, the day after the closure, a vice-president of the Bank of America was told by a representative of the Bank that “Jimmy took some money and took off ․ [t]he guy's a thief, the guy's a crook.”   Later, the Bank's attorney told Williams's former attorney the “guy's a crook” and a thief.

18.   During trial, both sides voluntarily waived the jury.

19.   As prevailing party, Williams sought an award of costs and attorney's fees pursuant to the provisions of the contracts with the Bank.   The court awarded Williams an additional $83,019.91 in costs, as well as $200,000 in attorney's fees.

20.   All statutory references are to the Civil Code unless otherwise specified.Deceit is further statutorily defined within sections 1709 and 1710.   The former expressly provides:  “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.”   The latter defines deceit as either:  “1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;  2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true;  3. The suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact;  or, 4. A promise, made without any intention of performing it.”

21.   The allegation of fraud did not incorporate by reference any of the fiduciary duty allegations contained within the ninth cause of action involving breach of the implied covenant of good faith and fair dealing within the fourth amended complaint.

22.   The trial court stated in pertinent part:  “This court's statement of facts and conclusions drawn therefrom establish the elements of this tort [fraud].   Security Pacific National Bank, through its officers, employees, and agents made affirmative misrepresentations and additionally concealed, suppressed and failed to disclose material facts.   The bank was under a duty to disclose these material facts and this is especially so in light of the existing fiduciary relationship.   The bank officer, agents and employees acted with the intent to defraud Williams.   Williams justifiably relied on the statements, actions and non-actions of the bank officers, employees and agents to his detriment (resultant damages).”  (Italics added.)

23.   With regard to the Bank's contentions it was “ambushed” at trial by the trial court's permitting the filing of the fourth amended cross-complaint (infra.), the fifth cause of action for fraud in the fourth amended cross-complaint is identical to the claim for fraud pleaded in the fifth cause of action of the third amended cross-complaint.   The latter was filed over three years before trial.   Similarly, with regard to the sixth cause of action of the fourth amended cross-complaint for negligent misrepresentation, it is identical to the claim within the sixth cause of action of the third amended cross-complaint, which was also filed three years before trial.   Only the ninth cause of action in the fourth amended cross-complaint for breach of the implied covenant of good faith and fair dealing constituted a new theoretical approach which had not appeared within the third amended complaint.

24.   Mindful Williams seeks affirmance of the judgment based upon actual affirmative misrepresentations and without relying upon any fiduciary relationship between the parties, the Bank contends Ross's evaluation of Viking Dodge as a dealership and its conditional sales contracts as being “good” constituted unactionable statements of opinion.“Generally, actionable misrepresentation must be one of existing fact;  ‘predictions as to future events, or statements as to future action by some third party, are deemed opinions, and not actionable fraud․’  (4 Witkin, Summary of Cal.Law (8th ed. 1974) Torts, § 447, p. 2712.)   But there are exceptions to this rule:  ‘(1) where a party holds himself out to be specially qualified and the other party is so situated that he may reasonably rely upon the former's superior knowledge;  (2) where the opinion is by a fiduciary or other trusted person;  [and] (3) where a party states his opinion as an existing fact or as implying facts which justify a belief in the truth of the opinion.’  (Borba v. Thomas (1977) 70 Cal.App.3d 144, 152 [138 Cal.Rptr. 565]․)  Examples of actionable statements under these exceptions include a sales agent's representation that a condominium with structural defects was nevertheless luxurious and an outstanding investment (Cooper v. Jevne (1976) 56 Cal.App.3d 860, 866 [128 Cal.Rptr. 724] ․) and a realtor's opinion that the purchaser of a particular lot would have an enforceable access easement.  (Southern Cal. etc. Assemblies of God v. Shepherd of Hills etc. Church (1978) 77 Cal.App.3d 951, 959 [144 Cal.Rptr. 46]․)”  (Cohen v. S & S Construction Co. (1983) 151 Cal.App.3d 941, 946, 201 Cal.Rptr. 173.)Here, the record clearly supports applying either of the two remaining exceptions to this general rule without requiring reliance upon a fiduciary relationship.   In any event, as we shall explain, a fiduciary relationship may exist between a lender and borrower and substantial evidence supports the trial court's finding here such a relationship existed as a matter of fact between these parties.

25.   “The rule of unjustifiable reliance ․ is seldom applied in practice, for the old notion of ‘caveat emptor’ is thoroughly discredited.   There is ordinarily no duty to investigate, and the former defense of contributory negligence of the plaintiff was held not to be a defense to the intentional tort of fraud.”  (5 Witkin, Summary of Cal.Law (9th ed. 1988) Torts, § 715, p. 814;  Arthur L. Sachs, Inc. v. City of Oceanside (1984) 151 Cal.App.3d 315, 323, 198 Cal.Rptr. 483.)

26.   “ ‘No rogue should enjoy his ill-gotten plunder for the simple reason that his victim is by chance a fool.’ ”  (Seeger v. Odell, supra, 18 Cal.2d at p. 415, 115 P.2d 977, quoting Chamberlin v. Fuller (1887) 59 Vt. 247, 9 A. 832, 835.)

27.   The Bank's citations to the record do not support its further representation Walker expressly counseled Williams not to purchase Viking Dodge.

28.   Moreover, because we conclude there existed a fiduciary relationship between the parties (infra.), we note that where a duty to disclose material information arises between a lender and borrower because of the existence of such a confidential relationship, any adversity in interest regarding the underlying debt between the parties becomes secondary.  (First American Nat. Bank of Iuka v. Mitchell (Miss.1978) 359 So.2d 1376, 1380.)

29.   In fact, regarding the duty to disclose, Ross testified that a bank considering a loan to a dealer has the obligation to disclose information regarding the transaction adverse to the dealer's interests even though disclosure would hurt the bank's interests.   Moreover, similar descriptions of the obligation of a banker to disclose known business risks to potential dealership clients were given by the Bank's expert witnesses Ehrenfeldt, Koenig, Butler and Guptill.

30.   BAJI No. 12.36 provides in pertinent part:  “A fiduciary or a confidential relationship exists whenever under the circumstances trust and confidence reasonably may be and is reposed by one person in the integrity and fidelity of another.”

31.   In fact, Williams testified it was unnecessary for him to read the financial statements of the dealerships because “[t]he Bank—Howard [Butler] or Charlie [Walker], would always tell me what to look for and they had Mr. Ross looking at them.   Mr. Ross could look at your financial statements and tell you if you were using too many grease rags.”

32.   The Bank's reliance on this court's opinion in Wagner v. Benson (1980) 101 Cal.App.3d 27, 161 Cal.Rptr. 516, is misplaced.   In Wagner, the plaintiffs borrowed money from a bank to invest in a cattle raising venture.   When the investment proved unwise, they sued the bank for (among other causes of action) tortious breach of the implied covenant of good faith and fair dealing, theorizing the bank had a duty to disclose certain information about the business entity in which they had invested.   Affirming a judgment on the pleadings, this court reasoned the duty of good faith and fair dealing did not include the bank's duty to disclose information to them regarding the investment because the success of the plaintiffs' investment was not a benefit of the loan agreement the bank had a duty to protect.   Within the context of a fiduciary relationship, Wagner is consistent with the general rule a debtor/creditor relationship does not constitute a fiduciary relationship as a matter of law.   However, Wagner does not stand for the proposition a debtor/creditor relationship may never constitute a fiduciary relationship, because there was no claim in Wagner that a fiduciary relationship existed in fact between the parties.   Moreover, Wagner is distinguishable from the factual context of this case where the Bank not only advised and encouraged Williams to acquire Viking Dodge, but also played a dominant role in negotiating and culminating the ultimate transaction.

33.   All testimony regarding the incident of Ross throwing dealer Sargent through a window, as well as all evidence pertaining to the closure of Sargent Ford, was struck by the trial court near the end of trial.

34.   This sexual harassment allegation regarding Bank personnel propositioning female employees at Gustafson's dealership is a red herring.   As the trial progressed, such evidence appeared irrelevant and the trial court properly kept it out for the most part.   However, the Bank's rebuttal witnesses did address the issue, emphasizing only one Bank employee (Araman) was involved and he vehemently denied it.   In any event, the de minimis character of this evidence in light of the entire voluminous record, which is devoid of any indication of court reliance on the challenged evidence, renders its admission harmless error.

35.   In its reply brief, the Bank additionally asserts the evidence is inadmissible under Evidence Code section 787, precluding the admission of evidence of specific instances of conduct to attack the credibility of a witness.

36.   Within their opening brief, the Bank by citation only challenged that portion of the testimony of Cleveland Leonard, a former automobile dealer, who described Ross's reputation in the automotive community as being a “hatchetman” and not truthful, and personally opined Ross is “a prick, and always has been, and he was out to get me, and he got me”;  that portion of the testimony of John G. Gustafson, another former automobile dealer, who knew Ross personally and described his reputation in the automotive community as also being “a hatchetman, cannot be trusted, and he does not tell the truth” and declared his personal opinion Ross is “a no-good, rotten son of a bitch ․ [who] ruined my whole life”;  and that portion of the testimony of Bugelli who declared Ross's reputation was that “he did not do with [people] what he said he was going to do,” as well as his personal opinion Ross was not truthful.

37.   In its reply brief, the Bank asserts the trial court failed to comply with minimum procedural requirements for determination of relevancy of the proffered “similar acts” evidence as explained in People v. Enos (1973) 34 Cal.App.3d 25, 35, 109 Cal.Rptr. 876.   Emphasizing the trial court's failure to examine the precise elements of similarity between Williams's claims and the proffered evidence to determine the strength of the inference and thus the admissibility of the evidence, it argues the trial court improperly shifted the burden of presenting foundational evidence from Williams onto the Bank forcing it to try to show dissimilarity, rather than requiring Williams to present the clear foundational evidence of similarity.   Postulating superficial similarity is probative of nothing, the Bank distinguishes Williams's cases relating to the admissibility of such evidence in fraud cases as involving “simplistic, one-dimensional prior acts which were easily proved and logically consistent.”   However, with the dismissal of the jury, our concerns here are whether the challenged evidence is relevant and, if not, whether its admission constituted prejudicial error, as the factors set forth within Evidence Code section 352 are no longer applicable.   Moreover, we cannot fault the procedure followed by the trial court here of requiring Williams's counsel to make the written offer of proof, its review of the sufficiency of the offer after argument of the parties, and its additional review and ruling on each objection made by the Bank to specific evidence during the examination of witnesses.

38.   Had answers been given over objection, the subject matter would have been totally revealed and the Bank's recourse would be to convince the trial court its objections were valid when the matters were raised at trial.

39.   Traditionally, the jury-trial system of evidence has governed trials before the court as well.   Perhaps, the most significant influence encouraging trial courts to entertain this attitude toward evidence rules in nonjury cases is the well-established appellate court rule that “in reviewing a case tried without a jury the admission of incompetent evidence over objection will not ordinarily be a ground of reversal if there was competent evidence received sufficient to support the findings.   The judge will be presumed to have disregarded the inadmissible and relied on the competent evidence.   If he errs, however, in the opposite direction, by excluding evidence which he ought to have received, his ruling will of course be subject to reversal if it is substantially harmful to the losing party.  [¶] These contrasting attitudes of the appellate courts toward errors in receiving and those in excluding evidence seem to support the wisdom of the practice adopted by many experienced trial judges in nonjury cases of provisionally admitting all evidence which is objected to if he thinks its admissibility is debatable, with the announcement that all questions of admissibility will be reserved until the evidence is all in.   In considering the objections if renewed by motion to strike at the end of the case, he will lean toward admission rather than exclusion and at the end will seek to find clearly admissible testimony on which to base his findings.   This practice will lessen the time spent in arguing objections and will ensure that appellate courts will have in the record the evidence that was rejected as well as that which was received.   This will often help them make an end of the case.”  (McCormick on Evidence (3d ed. 1984) tit. 3, ch. 6, § 60, pp. 153–154, fns. omitted.)

40.   Within the context of fraud, the establishment of this trust relationship was especially relevant to the issue of justifiable reliance.

41.   “ ‘ “Habit” means a person's regular or consistent response to a repeated situation.  “Custom” means the routine practice or behavior on the part of a group or organization that is equivalent to the habit of an individual.’ ”  (People v. Memro, supra, 38 Cal.3d at p. 681, fn. 22, 214 Cal.Rptr. 832, 700 P.2d 446, quoting 2 Jefferson, Cal. Evidence Benchbook (2d ed. 1982) § 33.8, p. 1267.)

FN42. All rule references are to the California Rules of Court unless otherwise specified..  FN42. All rule references are to the California Rules of Court unless otherwise specified.

43.   Contrary to the Bank's assertion, the potential for false statement, distortion, exaggeration, or lack of recollection is substantially reduced through review of its own documents and interviews with its own witnesses before, during and after the direct examination of Williams's witnesses.

44.   The Bank's motion for a mistrial essentially mirrored in reasoning its motion for a continuance.   However, it did additionally argue the members of the jury had been advised of a shorter time estimate than it appeared the trial would take creating an “impossible position of inordinate and incurable injustice.”   However, because the Bank later voluntarily waived the jury, any error the trial court may have committed in denying a mistrial as to this consideration is now moot.   Accordingly, the Bank similarly has failed to establish the trial court abused its discretion in denying its motion for mistrial.

45.   The Bank acknowledges Bauman's declaration was filed on February 18, 1986.

46.   Moreover, because newly discovered evidence, deliberately concealed and material to the case of the aggrieved party, constitutes intrinsic fraud, the Bank can neither seek relief through petitioning this court for a writ of coram vobis, as indeed such relief “would extend the time for a motion for a new trial by pure judicial fiat.”  (Los Angeles Airways, Inc. v. Hughes Tool Co. (1979) 95 Cal.App.3d 1, 9, 156 Cal.Rptr. 805.)

47.   More precisely, Brodshatzer opined Williams had two wage losses, past wages at the time of trial of $1,669,554, and future wages of $877,093.   However, the trial court declined to award the latter damages for future loss of wages.

48.   Contrary to the Bank's representation, Williams's expert's opinion was not based on any assumption Williams earned income from three dealerships at one time.

49.   Within their declarations, experienced counsel Dennis A. Schoville, Brian D. Monaghan, and Peter P. Gamer all declared the contingency fee arrangement of one-third of recovery through trial was not only reasonable, but was on the low side for a case of this nature.

50.   The failure of the trial court to prepare an adequate statement of its reasons for its award on this record is surprising in light of its comprehensive treatment of all other issues.   In any event, it substantially hinders our task of appellate review.  (See Martino v. Denevi (1986) 182 Cal.App.3d 553, 560, 227 Cal.Rptr. 354;  In re Marriage of Cueva (1978) 86 Cal.App.3d 290, 301, fn. 5, 149 Cal.Rptr. 918.)

1.   All statutory references are to the Code of Civil Procedure unless otherwise specified.Section 632 reads:  “In superior, municipal, and justice courts, upon the trial of a question of fact by the court, written findings of fact and conclusions of law shall not be required.   The court shall issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of any party appearing at the trial.   The request must be made within 10 days after the court announces a tentative decision unless the trial is concluded within one calendar day or in less than eight hours over more than one day in which even the request must be made prior to the submission of the matter for decision.   The request for a statement of decision shall specify those controverted issues as to which the party is requesting a statement of decision.   After a party has requested such a statement, any party may make proposals as to the content of the statement of decision.“The statement of decision shall be in writing, unless the parties appearing at trial agree otherwise;  however, when the trial is concluded within one calendar day or in less than 8 hours over more than one day, the statement of decision may be made orally on the record in the presence of the parties.”Section 634 reads:  “When a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court either prior to entry of judgment or in conjunction with a motion under Section 657 or 663, it shall not be inferred on appeal or upon a motion under Section 657 or 663 that the trial court decided in favor of the prevailing party as to those facts or on that issue.”

WORK, Associate Justice.

KREMER, P.J., concurs.

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